January 2010

It is that time of year again: Tax Season. If you have not already, shortly you will start to receive your 1099’s, W-2’s and other financial documents needed to prepare your tax returns. 

But this year, more so than in prior years, you may benefit from reviewing not only your basic tax forms, but other financial data as well. 


The American Recovery and Reinvestment Act of 2009 created a number of tax credits and deductions for individuals that should be kept in mind when preparing your returns. For example, you have probably heard that first time home buyers are eligible for a tax credit. But don’t forget that home buyers who are replacing a principal residence in which they lived for five out of the last eight years are also eligible for a credit. It is also worth reviewing the definition of “first time homebuyer” since your prior homeownership may not disqualify you from claiming this tax credit for your recent home purchase. 


You may not have qualified for the “Cash For Clunkers” program, but if you purchased a new car in 2009, you may qualify for a deduction. 


For more specific information, it is worth visiting the IRS’s site at http://www.irs.gov/newsroom/article/0,,id=204335,00.html


For some creative thinking on the topic, I would suggest Katie Adams’ column at http://www.msnbc.msn.com/id/34848380/ns/business-personal_finance/ 


Obviously, you should review all of your deductions and credits with a tax professional, but as we approach that most wonderful time of the year (do you sense my sarcasm?), it would be a shame to overlook the new credits and deductions.

According to statistics available through CHIP, there are 197,150 people enrolled in CHIP in Pennsylvania. CHIP in Pennsylvania is available to all uninsured children and teens up to 19 years of age, who do not qualify for Medical Assistance. Due to CHIP’s eligibility requirements – which has no income limit for eligibility – it is often a viable option for people from a diverse range of economic backgrounds. Many times the cost of medical insurance through employment for a child support “obligor” is cost-prohibitive to the payor, while the payee receives less support due to the credit given by the Pennsylvania Support Guidelines to the paying parent. By minimizing both parties’ exposure to medical costs, so long as they are eligible for the benefit, CHIP has the effect of extending medical coverage over children, while possibly eliminating unreimbursed medical expenses to the parties.

CHIP, however, has recently made the news due to its consideration within the new Federal health care legislation. CHIP exists as both a state and federal program, with Pennsylvania enacting CHIP in 1992, and a Federal version being signed into law by President Bill Clinton in 1997. Both the U.S. House of Representatives and the Senate have two different ideas as to how to deal with CHIP within the Federal health care systems.


First, the Senate version of the health care legislation proposes extending federal financing through 2015 (it is currently set to expire in 2013). This amendment, advocated by Senators Bob Casey (D-PA) – whose father, Governor Robert P. Casey, originally signed Pennsylvania’s CHIP legislation into law – and John D. Rockefeller, IV (D-WV) would effectively keep the current version of CHIP in place, allowing for some changes in income eligibility.


The House, on the other hand, advocates eliminating CHIP altogether and funneling participants into Medicaid, the federal-state insurance program for the poor, or to one of the health insurance exchanges whereby medical insurance would be purchased at a reduced cost with government subsidies offsetting the cost.


An excellent summary of the two bills was written by David M. Herszenhorn for a New York Times health policy blog: (http://prescriptions.blogs.nytimes.com/2010/01/03/program-for-children-has-uncertain-future/)


Currently, CHIP eligibility and cost is determined by income and the number of children. http://www.chipcoverspakids.com/assets/media/pdf/2009_income_guidelines.pdf There is no income limit to qualify for CHIP, though income will effect amount of subsidy a child is eligible to receive, while under the proposed legislation, eligibility for the Medicaid option in the Senate plan would include up to 133% of the federal poverty line, while the House bill would be up to 150% of the poverty level.


The outcome of the Federal health care legislation will determine the future of CHIP in Pennsylvania and will be closely monitored in the coming weeks.

Much as with a presidential election, the Pennsylvania support guidelines are to be revised by the Pennsylvania Supreme Court once each four years.  Drafts of proposed changes to the guidelines were published in July and December, 2008.  In each instance comment from the legal community and public was invited.  But for more than a year now we have been left to wonder how the guideline changes would look once finally completed.

The task was concluded on January 12 of this year when The Supreme Court issued Order 519 amending the guidelines effective May 12, 2010.  Until that date the existing Rules prevail but since the changes in the guidelines are themselves a change in circumstance, any order issued between now and May 12 is subject to further amendment at that time.  So, for practical purposes the guidelines are here today.


The major changes have to do with child support for households with combined net incomes exceeding $20,000 a month.  Under the last set of guidelines any case where income exceeded $20,000 was to be decided based upon proven expenses under a 1984 case, Melzer v. Witsberger. The data and calculations required to do a complete Melzer analysis were complicated and often produced wildly varying results from case to case and judge to judge.  So a decision has been made to take the guideline grids to $30,000 a month.  Where income is higher than $30,000 a formula is provided from which a presumptive amount of support may be calculated.

There are changes in the guidelines themselves although our initial review of those changes do not portend much radical change.  Here are some samples:



                                                1                              2                              children

10,000                               1390 (old)                1840 (old)

                                       1385 (new)                1965 (new)

15,000                                1741 (old)                2253 (old)

                                       1782 (new)                2319 (new)

20,000                                2301 (old)               2877 (old)

                                       2144 (new)               3018 (new)

25,000                          Melzer analysis required (old)

                                       2443 (new)              3389 (new)

30,000                          Melzer analysis required (old)

                                       2756                       3777 (new)


Many members of the bar are critical of what they see as an inherent stinginess in these guideline amounts.  In each instance, where combined net income triples from $10,000 to $30,000 a month, the amount of child support essentially doubles even though the parents presumably have much more free money (beyond their own core needs) to contribute to child support.


In cases where the income exceeds $30,000 per month net, formulae are employed to calculate the support amount.  Where one child is involved the support will increase by 6.5 cents for each dollar of income beyond the $30,000.  In the case of two children the support increases by 8 cents for each dollar over the $30,000 threshold.  So, if combined net was an astronomical $50,000 per month, two children would warrant a monthly award of $5,377.  One child would warrant $4,056.


Another significant area of change is in the area of shared custody.  Historically, to qualify for a discount from the standard guideline amount premised upon significant custodial time spent by the child(ren) with the non-primary parent, that parent had to have custody for 40% of the year or 146 nights.  Reaching that threshold entitled the parent to a discount upon his share of the support amount by 10 basis points.  Thus, if Father had the child 146 nights and earned 60% of the combined net income of both parents, his percentage obligation would be reduced by 10 basis points from 60% to 50%.


The new regime assumes that a parent who does not have primary custody still has the child 30% of the time or 109 nights.  If that parent has less than that amount, support may be adjusted upward on the theory that the non-custodial parent is not paying his/her share. This concept did not make it into the rule itself; only the commentary to the rule so that the issue needs to be raised before the Court and argued.  As before, once the 40% custody level is attained there is a 10 basis point reduction.  At 50% it is a 20 basis point reduction.  So if the non custodial parent has 78% of the net income, the support will be 58% and not 78%.  The new rules now state clearly that under no circumstances shall support of any kind be awarded to a spouse where the result would have the payee with more income than the payor.  The commentary states that Courts are to be less concerned about who has the child overnight and more focused upon what child expenses each parent is contributing.


Where each parent has primary custody of one or more children it has now been clarified that in calculating the support amounts the Court does not include the child support due to a parent as part of his income when doing the calculation for the other child or children.  It is only that parent’s net income before any child support award that it utilized.


In a rare case of the Rule of Civil Procedure reversing case precedent, the new rules state that mortgage adjustments in the amount of support for high mortgage cases shall only apply in cases where the parties are not yet divorced.


There are changes to the amount of spousal support and alimony pendent elite (pre divorce alimony) that warrant attention as well where the income of the couple exceeds $30,000 a month net.  In those cases, the commentary directs trial courts to apply the governing formula (30-40% of the difference in incomes depending upon whether there are minor children subject to support payments) but adds that the grounds to deviate from the guidelines recited in Rule 1910.16-5 as well and make a record of whether deviation was warranted.  To that end the commentary states that income and expense statements are to be filed in these cases so that the record may be developed.


There are also smaller changes worth mentioning.  In low income cases, the amount of income a person must have to support him or herself before a child support order may be entered has been raised.  Orders must be tailored so that any obligor retains $867 a month to support him or herself.


The use of earning capacity data (e.g., Dept. of Labor earnings reports) to calculate support orders is being discouraged.  The use of this data is relevant only when the Court finds that the obligor has willfully failed to secure employment consistent with abilities and that finding must be on the record. And earning capacity is to be based on a single full time job rather than some hypothetical construct of how and when a person could work.  The rule does not go so far as to exclude over-time or second job income from consideration in making an award where that income is actually paid.  Whether this means that a litigant could decline additional hours or quit a second job and use that as a basis to seek a reduction in an order premised upon historical over-time or supplemental employment is not really clear.


The guidelines themselves are appended to this summary with the following link:


http://www.aopc.org/OpPosting/Supreme/out/519civ.attach.pdf  rules


A new day begins…

A couple of weeks ago we were asked by one media outlet to comment upon the Gosselin divorce.  While this certainly was a “media opportunity” the plain truth is that there was not a great deal to say that would have been newsworthy.

The Gosselins were a phenomenon created by the media.  While their family situation was most unusual, they were not unique nor newsworthy but for the fact that they had so many children and that got them a television show.  In the end, their notoriety made them somewhat wealthy and newsworthy but there was no true staying power to the story.  One has to wonder whether their marriage would have survived had they been the same people they started out as; a young couple with a large family struggling to make it all work.  Ten years from now, they will be a trivia question and little more.  


The Woods situation is quite different.  It is clear to anyone who can read a newspaper or click onto “The Golf Channel” that Mr. Woods changed the sport in a way much as Arnold Palmer did in the late 1950s and early 1960s.  He is the face of the sport.  But fame comes at a price and brings with it many complications far beyond the ken of the young people upon whom the fame is bestowed.


We have no real familiarity with the situation but Mr. Woods was “built” from birth to become a world class golfer.  And in that aspect, he succeeded admirably.  But we commend to you a careful reading of Andre Agassi’s autobiography “Open”.  It describes a childhood not unlike that experienced by children who worked in coal mines in the early 20th century.  Yes, Mr. Agassi was hitting tennis balls in exclusive clubs throughout his childhood but after one has hit 1,000 serves during the course of a weekend of practice, is the result any more enjoyable than separating bituminous from anthracite coal on a conveyor belt?  Woods has not yet written his story and chances are it will be some time before he does but we suspect that while most of us were at proms and hanging out during high school at the neighbor’s pool, Mr. Woods was devoting his time to safely exiting sandtraps and pot bunkers.  Having devoted his childhood and the first decade of his adult life almost exclusively to golf, it is little wonder that he may have been tempted to indulge in other sports.


From a divorce side, the fascination for us is in the “issue” of brand value.  We are told that Mr. Woods has earned more than $1 billion dollars in his relatively short career.  But the brand produced as much as $100 million dollars a year in revenue and until a month ago that brand seemed to have no foreseeable end.  Thus, it made perfect sense for him to renegotiate with his wife what was a $20 million payout after ten years (the couple has been married for five) and “up” the payments to $80 million if it would buy silence and peace for the “Woods brand”  This revelation however, only caused the number of sexual claimants to multiply.  If Ms. Wood’s can quadruple her “take” in exchange for her silence, why can’t every woman who kissed, slept or claims to have had a relationship with Mr. Woods sign on for some kind of remuneration or a moment of fame.  In a word, the levee broke and we now have an entire coterie of women claiming that they were involved in some way or another.  


The reason why Mr. Woods could earn $100 million a year was because he was not only a fabulous golfer but was perceived to be squeaky clean. John Daley could win the grand slam and four other majors and never hope to equal that kind of income.  So, if guilty, it is only fair that the endorsements depart and Mr. Wood’s will have to resort to a journeyman’s income of $20-30 million.  But what is sad, and often lost in this the race to “the truth” is that two young people with small children are caught in a maelstrom of controversy that only hurts them and their offspring.  Their advisers are largely “friends” who feel badly for her and who live from the income that his huge prestige has provided. Most of us will never know what that kind of wealth and notoriety bring.  But they come with a price and that is the complete loss of privacy not only for one’s self but for family as well. And while we often find ourselves coveting the wealth and notoriety of others, realize as well that these blessings come at a price that is almost as great as the benefits they bestow.


There is also very real contrast to be drawn.  The media made the Gosselins and, we can speculate, by making them famous, they planted the seeds of marital destruction.  It may have happened in any event but, as with the Woods family, fame and wealth created temptations.  But Mr. Woods’ talent will afford him the capacity to make many millions more.  The Gosselins are famous by circumstance and the television show that made them famous was among the first to reject them when their fantasy world crumbled.  We all aspire to be rich and famous but, as they approach this season of thanksgiving we suspect that wealth and fame are not being celebrated in two households that started 2009 as our vision of ultimate success stories.