It is axiomatic that divorce is an emotional process. Samuel Johnson summed up domestic life best when he wrote, “To be happy at home is the ultimate result of all ambition.”

One of the great challenges of representing clients going through this highly emotional chapter of life is that their focus tends to be on the present. Certainly, there are many daily issues that do merit attention. We live day-to-day. But, when I do an initial interview with a client, two of the questions I try to focus on are: (1) how many years does this client have until their productive (i.e., income producing)  life will end, and (2) how is the client suited to prepare for that day?

These issues have become more acute over time. When I began working as a divorce lawyer in the 1980s, some elements of life seemed fixed. Retirement was at age 65. Most clients aged 40-60 either had stable employment or were married to spouses who had stable employment. Stable employment meant mid to long-term employment in a stable industry for a stable business. All of that has changed.

Today I am meeting with people who have not reached 50 who report that they are concerned about whether their employer will still exist another decade or whether they will survive as employees. What has changed so dramatically in the past decade is that it is often the most senior business executives who are talking about such vulnerabilities. Many of these people have very solid retirement assets today, but they have job insecurity. When we explore that issue, these often highly talented people are seeing a future as consultants working spasmodically or experiencing long periods between jobs.

The September 4, 2018 edition of the Wall Street Journal focuses on a subject too often forgotten in the divorce process. How will we prepare for a retirement in an age when we may find ourselves effectively “retired” years before we expected it?

As the Journal article correctly observes, financial needs in retirement have been more the subject of “convention” than actual study.  The conventional wisdom is that we will need 70% of our final annual income in retirement. The financial services industry has promoted 80% for reasons that are self-evident. The Journal article by Dan Arierlt and Aline Holzwarth challenges these assumptions and correctly observes that all of us whether going through divorce or not, can actually do the necessary homework ourselves. It can be uncomfortable work, but it is highly necessary work.

Realize first that many of us are being forced to pull down retirement assets long before we expect. That can be caused by unusual life events or even something as simple as being terminated while a loan is outstanding on one’s qualified retirement plan.

The starting point is to look at what retirement mechanisms are out there. Social Security is the most ubiquitous and the same issue of the Journal contains an article debating the merits of taking that benefit at 62 in contrast to normal retirement (roughly 66) or deferring to age 70. Then some of us still have defined benefit plans or annuities, which will begin to provide monthly income for life. Finally, we turn to the defined contribution accounts, whether IRAs, 401k’s or 403B plans. With these accounts, the question revolves around how and when to draw. The goal of that game is to die while still solvent although an increasing number of Americans are dying in significant debt.

The Journal article notes and we have observed that many people launch into retirement having lost their regular salary but acquired an additional 8-10 hours a day on their hands with not much to do. Many of us dream of time to golf or attend the theater. Golf is a $40 a day activity. Broadway is a bad example, but the average ticket is over $100. Still want to see your pro sports team live?  Baseball $40 a day. Pro football is Sunday only but $172 for the ticket alone. Most of us do not really consider downsizing things like auto purchases and we now have 365 days a year to visit Florida in winter or friends and family the rest of the year. In short, we have witnessed clients who retired at 65 with $700,000 in retirement who seem to think they can maintain a $6,000 a month lifestyle. They can, so long as they don’t plan to live more than 10 years.

The article encourages people to actually wander into the weeds of these mundane daily costs while acknowledging that things like uncovered medical and long-term care expenses are unknowable given the state of our health care system. But, the article does not pay sufficient attention to what I will call the “core expenses” Will you retire with a mortgage and if so when will it be retired? Can you really afford to live in the home you have grown to love and nurtured with 30-40% of your pre-retirement household income?  The answer may be yes but the price may be a golf membership or the annual pilgrimage to the seashore. People don’t like to make these choices but you risk burning through your retirement too quickly unless you assess costs. Keep in mind as well that as you grow older, some things you do yourself like mowing lawns or cleaning windows and gutters will have to be outsourced unless you want to budget for some inpatient rehab when the hip breaks.

The other area not discussed but an area of high vulnerability for retirees is unbudgeted “child needs.” As attorneys, we have seen divorce clients who had large portions of their savings dispersed to subsidize a child’s drug rehabilitation, criminal defense or creation of a new business enterprises, built more upon hope than expectation. Their children have effectively made a once secure retirement far less secure. The parents providing these resources underwrite these or even more frivolous expenses (e.g., family vacations), ignoring the fact that as retirees, they have no ability to replace spent assets.

The electronic version of the article links to an Excel spreadsheet that identifies expenses by categories. Anyone contemplating retirement needs to look at that budget. A similar one can be found on the Pennsylvanian support rules by clicking on Income and Expense Statement.

Retirement is an uneasy subject especially in a world where the vagaries of employment may leave us retired long before we expect. But we need to look carefully at a day when we cannot replace what we consume with additional labor. And, in my world, we also deal with taking a retirement that might comfortably support two people in one household, which becomes stretched beyond normal limits because divorce has now taken a common resource and demanded it support two independent homes. The truth is that we are living a long time; a fact underscored by watching 106-year-old Roberta McCain bury her octogenarian son. Therefore, whether you are enduring a divorce or just thinking about your future, those thoughts need to focus on what you will need in the years ahead and how you will “mind the gap.”

Every year, both in April and in October, divorce lawyers face a dilemma.  While April is the official tax deadline, just about everyone knows that “complex” returns are almost never complete when spring rolls around and many filers defer to October.  But, when couples split they often ask for the first time whether they should be filing jointly with their spouse.  This often presents difficult questions for the lawyers because we are not accountants and we are latecomers to the financial history of the marriage.  The easy answer is to say “Never!” in response to the inquiry, but that usually means the marital estate will have additional tax burdens.  It also is often a financial shot across the bow of the primary breadwinner, causing aggravation that can set a decidedly negative tone to the negotiation process.

Inevitably, once the discussion about joint versus separate returns gets underway, one of the parties introduces another term, “innocent spouse.”  For many years, if one spouse was seriously hedging in reporting income or by deducting improper expenses, the spouse who did not produce the income or determine the expenses could claim that they should not be held liable for the taxes, interest and penalties.  This was because he or she did not know and could not reasonably have known about the tax evasion.  It is an area where laypeople seem to think they are expert when they most certainly are not.

On Saturday, the Wall Street Journal reported on the story of Rick Jacobsen.  Rick filed jointly with his wife.  In 2012, the IRS found that Mrs. Jacobsen had embezzled about $500,000.00 from a non-profit where she did accounting.  Most people don’t realize this, but if you steal money, the government classifies it as income and you owe taxes on it.  So the IRS sent the joint filing Jacobsen’s an “assessment” for $100,000.00 in income tax due but unpaid.  Jacobsen contested the assessment contending that he did not know about the “income” and should not be assessed for something his wife did without his knowledge.  Last month the U.S. Tax Court agreed.

How come the IRS did not just get the money from Mrs. J?  You know.  She was in prison and the money had disappeared.  So, Mr. Jacobsen filed his own Form 8857 and claimed he knew nothing about the income or the tax associated with it.  He was underway when a new wrinkle emerged. His now “ex” told the Service he did know about the money taken.  Innocent spouses are not innocent if they either knew about or “profited” from the wrongdoing spouse’s conduct.  Thus, if you are reporting $4,000.00 a month in income and you are making mortgage and car payments of $5,000.00 a month, the term “innocent” may not fit comfortably around your financial neck.  The IRS denied Herr Jacobsen relief and he appealed to the Tax Court, which heard his case in 2017.  By the time the case was heard the tax due had swollen to $150,000.00 with penalties and interest.  His happy news is that the Court decided for him on almost all of the unreported income.

How did he prevail against the government?  First, he showed that he was financially unsophisticated.  His wife was an accountant.  He had an associate’s degree and worked in a cheese factory.  Second, and most important, he could show that the money embezzled did not inure to his benefit nor was it apparent from his wife’s lifestyle.  The couple did gamble a lot, reporting $160,000.00+ in gaming income and corresponding losses in one year. The couple filed electronically and husband said his only involvement in tax preparation was providing his W-2 wage statement to his wife.  Not only did their lifestyle not improve, at one point their utilities were suspended for non-payment.  The Tax Court accepted his testimony that his gaming activity was quite modest and involved only slots.  One can picture the IRS attorney wincing during that testimony.  The Court also did not credit wife’s testimony that her husband knew because it was not supported by any evidence.

Other intangibles are credited with his win as well.  He is a disabled veteran who is no longer married to the offending taxpayer and aside from the issues associated with his joint filing, all other returns he filed showed income properly reported and taxes properly paid.

The Opinion reported as T.C. 2018-115, is worthy of review as the presiding judge marches through the statutory facts and case law to reach her conclusion.  She found that husband was “out” for most of the tax liability arising from 2010, but had to pay tax on a small piece of unreported income in 2011 because he filed a joint return, even after his wife was charged with embezzlement. Note also that the case is decided under precedent from the Seventh Circuit Court of Appeals. Other Circuits may employ other standards or analysis.

Also important to know is the statistical trend.  In 2013 there were roughly 35,000 innocent spouse cases presented for disposition.  Relief was denied in just over 10,000 of those cases and granted in some form or the other in 25,000.  In 2017 the number of requests had fallen to 25,000 and in that year the denial rate soared so that the chance of denial was equal to that of getting relief.  As Sgt. Esterhaus said best, “Let’s be careful out there.” And, beware that the tale of an ill-advised joint return may come with a tail of never ending tax obligations.

On June 19, 2018, the Pennsylvania Supreme Court, in an Opinion that could be described as unanimous, ruled that the trial court was correct when it decided that it could deviate from presumptive minimum guidelines in a high-end child support case. The case has been floating about for quite some time. We wrote about the Superior Court decision back on December 7, 2016 and we provided the incomes the Delaware County Court had to look at:

Mom Dad
2009 184,000 4,000,000
2010 139,000 1,100,000
2011 145,000 2,300,000
2012 105,000 15,500,000

The case arises from a property settlement agreement which stated that the parties would exchange tax returns and calculate child support annually based on respective net income “and Pennsylvania guidelines, provided,…either party may apply to the court to adjust child support…based on relevant factors.” Those last few words may have made a world of difference because if the sentence ended without reference to “relevant factors”, the obligor may have been stuck with the presumptive minimum contained in the guidelines. Recall that the right to support as a matter of contract in a divorce setting may yield a far different result than one decided in support court.

One cannot fault the majority opinion of Justice Baer, which is itself, lauded by the concurring opinion of Justice Wecht. The line of reasoning is fairly clear. Child support guidelines are premised upon economic studies of child needs. However, as income climbs higher and higher, needs become less easily calculated. When it adopted “guidelines” for families netting more than $30,000 a month, the Court merely extrapolated and largely speculated about those needs. So, even though there is a guideline amount and that guideline amount in Hanrahan, produced a support order in the range of $60,000 a month, the parties should have the right to make a record about the specific needs of such families and dip into the evidentiary well known as “lifestyle.”

What concerns this writer is, just what is a trial court to do with this “lifestyle” question and just how far does the evidence go? Needless to say, the law seems quite clear that if I make $7,500 a month and my ex brings down $2,500, my “lifestyle” testimony is not going to get very far. I have to fit my lifestyle around the guidelines, and unless my kids have some very unusual needs, their “lifestyle” is not going to get any more consideration than mine or that of the prodigal mother.

But once the income balloon ascends above 30,000 feet, the door of Melzer v. Witsberger appears to spring open despite the language of Mascaro v. Mascaro. This means inquiries into “lifestyle” and that is a pit, which has no bottom. The facts in Hanrahan illustrate the point. Look at Mr. Hanrahan’s income. A million or two a year invites travel on timeshare jets or acquisition of a reasonably fancy Cessna. Get to four million in income and now a Learjet 35 falls into play. As I reach the million a month club, I have arrived in Gulfstream territory although my plane will probably be an older model and I may not be able to lug around more than seven friends and family.

Are judges supposed to hear this? Moreover, what wisdom can their life experience impart when the pinnacle of their lifestyle is an upgrade to first class on a scheduled commercial airline? At what level of income do we abandon commercial aviation or propeller driven transportation in favor of jet aircraft? In addition, what do we do in instances where the income is a one off; e.g., a lottery win or sale of a business, or the magnificent income is not sustained. Once children have gone “private”, can we ask them to downgrade back to commercial aviation?

I have participated in these trials and suffice to say, after a few hours they become tedious. The obligors love to wax on about how frugal they can be and “in touch” with their humble beginnings, whether real or imagined. Obligees remember seeing Parsifal from the box seats at the Bayreuth Festspielhaus and knocking back glasses of Krug Clos du Mesnil at intermission with the Obligor before the champagne and the marriage soured. The judge has to listen to how much the fourteen year old adores Wagner and the “Ring Cycle” while the judge wonders whether the “ring cycle” is a setting on the Whirlpool in his laundry room.

Reason tells us that $2,000 a day is a lot of child support. The Supreme Court was right to say that in settings such as this, expenses do matter. But, in communications I have had with lawyers who lived through the days of Melzer, there is fear that unless someone limits the “needs” and “expense” testimony, we will have courts hearing days of testimony. Taxpayers in a setting will underwrite the judicial time where this obligor’s 2012 daily income rivaled the annual household income of the mean Pennsylvania household. That is not good for anyone, except perhaps the lawyers asking whether little Rachel eschews cotton as she has grown used to cashmere.

Hanrahan v. Bakker 19 MAP 2017   [J-82-2017]   6/19/2018

A recent case published by the Superior Court gives us some insight into one issue which has thus far evaded appellate review and affirms in principle that alimony remains a secondary remedy and one which is awarded based upon need.

Core facts are:

Husband: 61

Wife: 56

Both employed in health care industry.

Husband’s net: $16,000

Wife’s net: $10,400

(60/40)

25 year marriage

Wife received support $2,200 in support since 2012.

Court awarded 55/45 split in favor of Wife.  The gross estate is $7,000,000+ pensions.

Wife asserted that Husband had dissipated $4.4 million of property on an extramarital relationship.  She appealed claiming the award did not give sufficient consideration to that fact.  The Trial Court opinion acknowledged expenditures outside the purposes of the marriage but concluded, “It is not the role of the Court to recoup expenditures made during the marriage by one party that the other party does not know about or does not agree with or to make a party whole again.”  It then added that in effecting an equitable distribution “considerable consideration” to contributions to creation of and dissipation of assets.

It appears that the Trial Court made its distribution with a blanket statement that it had “reviewed all the factors.”  The Superior Court concludes that the Trial Court carefully examined the distribution factors and that Wife’s lack of specificity on this issue was dismissed as waived.

On the $4.4 million dissipation issue, Wife presented a list of purchases and expenditures which she considered a dissipation as the month was spent for the benefit of an adulterous relationship.  As noted, the Court found that its role is not recoupment of dissipated assets but distribution of what remained.  It was sufficient that the Trial Court “considered” monies used by husband during the course of the marriage.  Hopefully this meant the monies “misused” during the marriage but that is not the word employed.

Another issue was that of whether alimony was appropriate.  The Trial Court had denied it stating that the expenses presented were not reasonable and, even if credited, did not exceed Wife’s income supplemented by the equitable distribution award.  The Superior Court, quoting Teodorski v. Teodorski noted that, “Alimony is based upon reasonable needs in accordance with the lifestyle and standard of living established by the parties during the marriage as well as the Payor’s ability to pay.  Moreover, alimony following divorce is a secondary remedy and is available only where economic justice and the reasonable needs of the parties cannot be achieved by way of an equitable distribution award and development of appropriate employable skill.”

The alimony language is interesting to see in a day when alimony appears to be more guideline than needs driven.  The language about the merit of preparing and presenting a dissipation case must be disheartening to many.  It appears that while there was a lot of “evidence” presented about dissipation, the Trial Court skated by stating that it heard and considered that evidence but had no responsibility to keep score or formally evaluate the dissipation claim in an economic sense.  Those who come to attorneys with stacks of evidence of funds spent on non-marital relationships will need to be warned that such a presentation will be certain in cost but not in outcome.  We don’t know how much of the $4.4 million in dissipation claims were solidly established.  What we do know is that in a 25 year marriage where the parties depart with husband having a 3:2 advantage in net income, the equitable distribution advantage to wife was roughly $350,000.

New York’s highest court, the Court of Appeals ruled on February 13, 2018 that a Facebook account holder’s designation of a posting as “private” did not preclude a litigant from obtaining copies of those postings where they may be relevant to the litigation.

The ruling comes from a personal injury case where the plaintiff claimed to suffer permanent injury in an equine fall.  The plaintiff’s claims included those typically associated with loss of enjoyment of life. The defendant sought to secure plaintiff’s entire Facebook account. Plaintiff opposed production of any private posting and the intermediate appellate court agreed that privacy protection was available.  Further, appellate review was allowed.

The Court of Appeals reversed the Appellate Division, noting that its ruling would allow a party to effectively “hide” otherwise discover-able material simply by marking it as private or otherwise curating their own social media postings. It permitted the Defendant to review post accident postings in search of evidence to rebut Plaintiff’s claim to have suffered cognitive injuries and loss of life’s enjoyment caused by the accident.

The ruling was not open ended however. The trial court had ordered all pre and post accident photos to be produced without regard to privacy settings except those involving nudity or romantic encounters. It also ordered Facebook to produce records of the frequency and length of the postings so that pre and post accident activity could be compared.  The Court of Appeals upheld those limitations but added that a request for these kinds of materials needs to be reasonably calculated to yield relevant information.

Needless to say, in the world of divorce, the scope of relevancy will be considerably broader than that associated with a claim for physical injuries. But, the ruling is an important one.

Forman v. Henkin  http://caselaw.findlaw.com/ny-court-of-appeals/1889175.html

This is not a political outlet.  So, I will confine my “political” comment to a single set of facts.  17 people killed yesterday. 32 school days so far this year.  Time Magazine reports 18 school shootings.  So a school shooting every other day.

The interviews I heard last night on television provided a haunting reminder of a conversation I had earlier that day with a colleague who treats families going through divorce.  We spoke about a common case.  The child we were discussing was enduring an acrimonious divorce.  The child is caught in the middle and is traumatized by the experience.  The therapist related to me that part of his concern was that the child we were discussing seemed to have no friends; no social connection of any substance.  The kid is in a lot of pain and his parents are so absorbed by their own suffering, they have little empathy to give.  So, the child spends hours of time alone in his home immersed in social media.

Last night I listened to coverage of the 19 year old shooter.  I heard interviews with his classmates.  The child was a loner with no identifiable friends despite efforts on his part to connect with peers directly and via social media.  Children in the high school who knew the shooter before he was expelled described him as strange and his efforts to connect with his fellow students were rejected because he was odd.  So, this child posted some very troubling things online and exercised his right under Florida laws to acquire an AR-15 automatic weapon shortly after attaining 18.  That gun fires more than 700 rounds per minute.

Last year Parkland was named Florida’s safest city.  The mayor described the community as “close knit.”  Like Columbine, Colorado, Sandy Hook, Connecticut and Nickel Mines, Pennsylvania, these are towns where mass shootings are not supposed to happen.  But, let us be plain, we are not a close knit society.  Our kids are more vulnerable to this kind of aberrant conduct than we would like to think.  If you watched the interviews with the affected children, you can tell they don’t even know what they have just lived through.  If anything, they are far too poised for people who have witnessed the death of mentors, classmates and come closer than they can consider, to being among those for whom there will never be another Valentine’s Day.

Eighty nine years ago yesterday, America learned of the brutal murder of seven men in a garage on North Clark Street in Chicago.  The killings became a part of American history.  Three months ago we watched 58 people killed and 851 wounded in Las Vegas.  Cellular phones and computers can make us more connected than we could have ever dreamed possible a generation ago.  But, we are less close knit and more disconnected than ever.  When will we realize that “connectivity” is not just a reality?  It is also a mirage.

President Trump has concluded that the nineteen year old shooter was mentally disturbed.  That should be self evident. But, a child like this lurks in just about every high school in America.  The question is, do we accept school shootings as part of the American way of life or are we going to do something to find these kids and give them help before more children die.

2017 was a remarkable year in many ways.  In late Spring we watched one of America’s favorite entertainers tried for sexual assault.  In October, prominent producer Harvey Weinstein  was accused of sexual assault by more than a dozen women.  The list of prominent men who have fallen from grace since the Weinstein story broke on October 5 would occupy a blog site of its own.  As this is written, a story has broken that a California legislator and leader of the #MeToo movement has found herself charged with sexual harassment by two people; a former staffer and a lobbyist.

While is it always tempting to write about those who are prominent, most of us who live in relative obscurity view them as “different.”   We like to think that perhaps the victims were complicit or at least indifferent to what occurred.   A common refrain I hear, even from women, is that the victim knew what she was getting into.  Others rally to the side of the victims, plainly asserting that the mere assertion of assault is prima facie evidence that it occurred.  I try to stay away from these stories because where wealth and power enter the equation, reality can become distorted.

That is what made my view of Anderson Cooper’s interview of Jennifer Willoughby so compelling.  Willoughby was not a public figure when she summoned the police to intervene in her domestic life in June, 2010.  She was just the bride of a 32 year old Senate staffer.  On paper, Rob Porter was everything a person would want in a spouse.  Harvard.  Mormon missionary work in London.  Harvard Law.  Rhodes Scholar at Oxford just like his father, the professor at Harvard.  But, in 2010 Ms. Willoughby reports that despite his polished and highly effective work in the United States Senate, their domestic life was overtaken by fear for her physical safety.

I would commend every parent with teenage children to make them watch the CNN interview with Willoughby.  The interview can be found at Daily Beast with reference to Jennifer Willoughby.   https://www.thedailybeast.com/rob-porters-ex-wife-warns-hope-hicks-hell-abuse-you-next  As I began to watch it I did so with some lawyerly skepticism, mainly because the story was old as was the divorce of the couple.  Many divorced couples love to dish on each other while millions watch.  Jerry Springer has made that model work for almost three decades.

But Willoughby was different.  She came straight out and explicitly said she had no agenda and wished her former spouse no harm.  I was still skeptical.  Until, in a very unscripted way, she began to ponder how what occurred arose from her choice of Rob Porter as her spouse.  Unlike many victims, she was not transferring blame to herself.  Not at all.  She was exploring how a relationship that once felt so right had traveled to such a bad place.  In 35 years of practicing law on behalf of victims and perpetrators, if I had a wish for all of them, it would be the self-conferred gift of introspection.  Whether knowingly or not, we have the ability to push the emotional buttons of those whom we profess to love. On July 28 Redbook published 50 phrases that we use everyday that push those anger buttons.  On November 21, 2017 Best Life published 20 Things No Husband Wants to Hear.  Most of these phrases would not be welcomed by any partner.  Any jurist who hears domestic violence cases will tell you that it is common to hear “Your honor, he punched me for no reason.”  Only psychotic people punch other humans “for no reason.”

If there was one area in the Willoughby interview where I think she strayed too far, it was her speculation about the woman her former husband is today dating.  Every relationship is different.  Ms. Willoughby may have incited violence without her even knowing how she did it.  She may have incited violence through conduct that even outsiders would not notice.  This is no justification for any violent conduct on the part of her then husband, but, rather than identify patterns of behavior that cause that domestic violence we rush to label people as “bad” or “good”.  What I found most instructive about the Jennifer Willoughby interview was that she made clear Rob Porter was not a “bad” man; he was a man who had issues with controlling his anger.  Thirty years ago, addiction was equated with moral failure.  We know better today and this writer submits that our views of anger and the violence it causes merit the same evolution in thinking that we have witnessed with substance abuse.  People afflicted with anger management problems do not benefit from ostracism; they require help.

Again, I commend every reader to give Jennifer Willoughby 26 minutes of time by listening to her tell her story.  Of course, there are two sides to every story.  But, no matter what the truth, Ms. Willoughby’s story is one every person can learn from.

A Superior Court decision last month by Judges Lazarus, Bowes and Ott reminds divorce practitioners that there are distinctions to be drawn between the rights of intestate surviving spouses and the rights of a surviving spouse to elect “against” the will of a decedent.

We start with some old news.  When the divorce code first came into effect in 1980 the rule was that the death of a spouse had the effect of abating any divorce action which had not been concluded by a final decree.  The 2005 Amendments to the law provided that once grounds for divorce had been established, the action could proceed with the decedent’s estate substituted as a party in the action.

Thomas Scarpaci died in 2013 while a divorce action was pending.  Wife had previously filed a Protection from Abuse Claim, but had withdrawn it.  The divorce action had been pending for almost six years when Thomas died intestate.

Widow Patricia filed for letters of administration.  In 2015 she circulated documents at first indicating that the estate would be divided among the decedent’s children and filed an inheritance tax return stating this was how the estate would be divided.  But, several months later her counsel issued a revised distribution statement indicating that she would be taking her share.  This distribution schedule was also not filed. When an audit status was called, the children of the decedent asked to strike the election and deny her the right to claim an intestate share.  After briefing, the Trial Court in Allegheny County sustained both arguments.  Wife appealed.

The Superior Court first looked at the issue of forfeiture of the right to take a share of decedent’s estate under 20 Pa.C.S. 2106.  The court notes that notwithstanding the length of the divorce, grounds had not been established as consents were not filed nor had either party perfected the existence of a two-year (now one-year) separation.  Thus the statute was inapplicable.

The second ground relied upon by the trial court was that the widow’s conduct warranted denial of her right to claim because she was guilty of non-support of her husband under Section 2106(a)(1).  The Superior Court held that the burden to prove non-support was upon the heirs advancing that claim.  The Court further notes that while alive, husband never prosecuted a claim for support and that the argument that wife should have supported him notwithstanding the absence of a claim was insufficient.  The object was made orally in the context of an audit proceeding.

In this case, the court never conducted a hearing or received evidence in any other form.  Curiously, the order deciding forfeiture was reversed without any remand for hearing.  The Court did note that many required pleadings, including an explicit request to declare wife’s interest forfeited, were not filed.

2017 Pa. Super. 393 (12/13/17)   http://www.pacourts.us/assets/opinions/Superior/out/Opinion%20%20Reversed%20%2010335312930622742.pdf

*A NOTE REGARDING OUR BLOG OF 1/3/18: We wrote on Passarelli Trust, a reported decision holding that failure to specifically disclose all assets placed in trust was not sufficient to dismantle the trust on the basis of fraud.  Earlier this month the Court withdrew this holding and ordered the matter argued en banc.

As this is written, the House and Senate this week are scheduled to vote upon a conference report of both houses of Congress which will “reform” tax law in a major way for the first time since the Reagan administration.  In order to secure passage, Congress needed to find some revenue enhancements to offset the tax reductions allocated to corporate and estate tax payers.

As we predicted in November, alimony as a tax deduction to the payor and an element of income to the payee, appears to be one of the revenue enhancers Congress decided to keep in the final bill, with one twist.  The House version ended alimony as a deduction for any decree or agreement formed after December 31, 2017.  The Senate version of the reform bill did not change the rules relating to alimony.  Thus, we anxiously awaited what would come out of the conference report published on Friday, December 15, 2017.  The 1000 page report can be found at http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf . Make certain you have your tax code with you when you start to read as the conference report is only a description of the amendments without the Code.

We did this.  In a nutshell, the Conference Committee adopted the House version but delayed implementation for one year.  Therefore, if you are negotiating or litigating a divorce case and you conclude your matter by agreement or decree before December 31, 2018 (a year from now), the old alimony rules apply.  But, beginning with tax year 2019, any new decree or agreement providing for alimony will be tax free to the recipient and nondeductible by the payor.  As Steve Hurvitz, current head of the Pennsylvania Bar Association Family Law Section observed when he read the bill; “There will be a lot of deals made in 2018.”

The effect of this and other changes in the Tax Code “on the ground” in Courthouses across the state is going to be seismic.  The current support guidelines have deductibility “baked into” the formula.  So, Congress is ripping up those rules.  Other adjustments to gross income that are used to calculate net income for purposes of support are similarly affected.  Mortgage interest is capped at $750,000; state and local tax deductions (including real estate taxes) are also capped at $10,000 ($5,000 if filing separate).  Personal exemptions disappear.  Home equity loans are no longer deductible.  All miscellaneous deductions (e.g., accounting tax prep fees) are eliminated.

The standard deduction is now:

Individuals:  $24,000 if married joint

Heads of Household:  $18,000

Single and Married Separate filers:  $12,000

Indexing rates and other tax items (dependency exemption ) for inflation has been repealed.  The child tax credit is elevated to $2,000 per qualifying child and would not phase out until $200,000 for non-joint filers and $400,000 for joint filers.

One thing would seem to be clear.  If you have a visit to Domestic Relations or a court proceeding in support scheduled for early next year, none of the algorithms in the support calculating software are going to provide a reliable result.  Perhaps the largest adjustment relates to income paid through a qualified partnership, “S” corporation or sole proprietorship.  Twenty (20%) of that qualified income is deductible.  The practical effect of what is or is not deductible is going to be the subject of IRS created regulations.

We have still not seen a copy of the Senate bill although PBS Newshour reports that the final version adopted by the Senate was not circulated in the Senate until late Friday evening and about 5 hours before the vote.  However, it appears that the Senate bill does not change existing alimony rules.  As noted on Listserve last month, the House version does abandon alimony as a deduction effective January 1, 2018.  If you are negotiating an alimony provision you need to be carefully following this issue on behalf of clients.  The one thing which all reports appear to confirm is that tax reform is a freight train that will not be stopped.  The House is scheduled to go out of session on December 14.  The Senate one day later.  The House needs to pass a bill in that time and the Senate and House need to decide on a “common” bill for joint passage and transmission to the President.  The House is circulating a bill that would forestall next week’s government shutdown until December 22, 2017, which would signal that they plan to extend their session.  But, suffice to say, the next ten days should provide plenty of excitement.