There was a time not so long ago when clients would unload their domestic troubles on lawyers like a cord of rotted wood. They might take care in shopping for the right fit in terms of who would represent them. But once the selection was made, the answer was “Let the lawyer do it.” That’s what they get paid for, right?

True enough, but as the quantity and quality of on line resources have proliferated, legal advice has started to be viewed as an indulgence. Anyone can tell you it’s expensive, and it is. And, there is a huge array of free information on the internet (like this blog) calibrated to be useful.

Millennials, in particular, like to do it themselves. In domestic affairs, they see this as their relationship and they should be able to regulate how it ends. They may grudgingly tolerate advice from others but they see that as a plot to abridge their right and their power to manage their own affairs. Their parents tend to be more practical at least in their own view. “For what I pay a lawyer, I could go to Disney, replace a car or some other entirely useful thing.” All true. Until it bites you in the backside.

In the past couple of weeks here are some of the internet myths we have had to detonate for true believers in the power of the web. Divorces are granted automatically in Pennsylvania after two years. Custody courts automatically impose shared physical (50/50) custody arrangements. The person paying the child support always gets to deduct the children. There is no alimony in Pennsylvania. Every child over 10 gets to decide where he will reside. Courts can’t divide pensions because they belong only to the employed spouses who earned them. All of these myths contain a kernel of truth but are more wrong than right. Not any of the websites we have seen actually misrepresent the law. But none of us relies exclusively on the net for information. We dose it with the information we get from the yoga instructor, the bartender at the favorite restaurant or the well- meaning advice of great uncle Ellwood who left his horrible first wife in 1978 to marry your not so great aunt.

So, does this mean forego Disney, the new car, or the 72” flat screen? Perhaps yes. But if you are doing a divorce where money matters or it is going to affect whether your kid spends two non-consecutive weeks or half the summer with his dope smoking mother, some legal counsel may be in order. There are times when we actually do advise clients that the battle is not worth the personal or economic price. But we had people come to us with agreements they have signed or court orders they never appealed that promise them a lifetime of pain. Like the spouse who assumed that lifetime alimony meant “until he retired”. Or the parent who thought that if she just let father relocate to San Diego with the child, she could always go back to her local court to undo it later. This has become more true over time. We now commonly see executives who once could easily afford the college commitment they signed up for in 2005. Ten years later, their child has been admitted to a college with tuition that consumed more than half of their downsized net income.

Lawyers are not retailers devoted to crafting a “happy” shopping experience. Like physicians we sometimes have to report unhappy results. But the results you get will be directed toward your assets, your children, your experience and not some well-crafted avatar which might seem to be similar to your life experience, but really does not.  Your domestic affairs are about your skin and, like it or not your skin is a custom made suit, not something you found on line or at Kohl’s or Boscov. If you must do it yourself, at least find out whether  it needs to be done, and how best to do it.

 

Yes, it is tax time once again and the struggles over who got Christmas morning in December now give way to “who gets the deductions and credits” associated with the minor child.  Here is the primer which is offered subject to the advice of income tax preparers.

In ancient times, which is to say, before 1984, the Internal Revenue Service used a support test to decide who got the deduction for a child.  But that is not the archaic view and we today assign the deduction to the parent who has custody more than half the time, no matter who pays what support.  If time is equally allocated the deduction goes to the parent with the higher adjusted gross income.  That may not seem fair but it is the law.  Many parents like to fight over whether mom or dad really had more than 50% but on that subject, chances are the IRS is going to say: “Send us the custody order; we don’t care what really happened.”

So, you couldn’t take living with Mr. or Mrs. Always Right anymore and you packed up the truck and move back with your parents on July 1, 2014.  What is your filing status?  The answer appears to be found in the Tax Code at Section 7703(b). Spouses “legally separated” under a decree of “separated maintenance” are not considered married for tax purposes.  Wofford, 515-2d T.M. Divorce and Separation, p A-70.  Unfortunately, Pennsylvania does not really define “legal separation” in the sense that it issues some decree of separation.  And it appears that a garden variety order of spousal support or alimony pendente lite or a separation agreement does not meet the test.

There is something called the abandoned spouse test.  If a taxpayer files a separate return and maintains a separate home where a child resides for more than half the year such that the child can be claimed as a dependent and that taxpayer provides more than half of the cost of maintaining the household occupied by that child, that taxpayer can claim to be unmarried. Bear in mind that the spouse cannot have been a resident of that taxpayer’s independent household during the last six months of the year. Costs of maintaining the household include rent, mortgage, taxes, utilities, insurance, maintenance and repairs and food consumed in the household.  These abandoned spouses qualify as heads of household, even though they may have been the spouse who departed.

There is a tax credit for care expenses required in order for the taxpayer to work.  The Dependent Care credit applies where the expense is to care for a child not older than 12 or a spouse or dependent who is physically or mentally unable to care for himself.  In order to claim the credit the person who needs the care must live principally with the taxpayer claiming the credit.  The credit starts out at 35% of the cost of the care but is reduced by 1% for each dollar of adjusted gross income over $15,000 per annum.  The phase out does not go below 20%.  Meanwhile the maximum credit is $3,000 per individual or $6,000 if filing jointly.

In addition to Dependent Care credits there is the Child Tax Credit.  This ties to who has the dependency exemption.  Bear in mind, the law presumes it goes to the parent having primary custody but the exemption can be assigned to the parent having less than 51% custody.  The credit is $1,000 per qualifying child.  The child must be 16 or younger and must have his/her principal abode with the person claiming the credit.  It phases out at $110,000 for joint filer, $75,000 for single and $55,000 for those filing married/separate.

The general rule is that personal expenses are almost never deductible by taxpayers on Schedule “A” (Itemized Deductions) of their personal returns.  But all rules have exceptions and almost everyone is familiar with the deductions available for medical and dental expenses.  These are great deductions but with this hitch.  You only get to deduct the amount that exceeds 7.5% of Adjusted Gross Income.  Thus, it takes some pretty catastrophic medical expenses to get past the threshold.

But there are two lesser known deductions that merit some attention.  Under Section 212(1) of the Internal Revenue Code, a taxpayer may deduct expenses directly attributable to the production or collection of income that is taxable.  Spousal support and alimony is taxable income and both the Tax Court and the Internal Revenue Service agree that counsel fees attributable to the determination and collection of spousal support and alimony are proper deductions under Section 212.  This includes proceedings to collect arrearages (overdue amounts) and to increase alimony payments.  The deductions apply only to the payee.  The payor does not qualify for a similar deduction in defending these claims.

The fees must be reasonable for the goal sought.  Thus a $10,000 deduction to secure a $9,000 increase may be subject to challenge.  The deductions for legal fees are also limited to those greater than 2% of adjusted gross income.  Thus if an otherwise unemployed spouse incurred $10,000 in fees to secure an award of $3,000 a month in alimony, her adjusted gross income of $36,000 per year means that the first $720 (2%) of counsel fees are not deductible.  The deduction is taken on Schedule “A” under “Job Expenses and Certain Miscellaneous Deductions” (lines 21-27 for 2014).

The second and more nebulous area where deductions may be taken is for “Tax Advice.”  Section 212 (2) of the Internal Revenue Code allows deductions for “the management, conservation or maintenance of property held for the production of income.”  This is a far trickier deduction as there are no Treasury Department regulations directly addressing it.  The regulations under Section 212(1) inform us that investment management fees and custodian fees associated with investments are deductible.  The same costs for a personal residence are not. Expenses of estate litigation are afforded deductibility even though not directly related to production of income.  Expenses incurred in asserting rights to property are non-deductible.  But if the property produces income and the claim is related to collection of a portion of it, that “income” portion is deductible.  Expenses associated with preparing tax returns are deductible but again the deduction is for expenses beyond 2% of Adjusted Gross Income.  The general view (not found in the regulations) is that “tax advice” secured for purposes of managing one’s investments is deductible and many divorce practitioners sometimes freely “allocate” a substantial portion of their invoice to “tax advice” to help a client out.  But, this is a slippery slope for both the adviser and the tax payer because unlike the alimony deduction, there is no real means to measure what is reasonable and what is not and to a large degree, the assets being allocated in the divorce are not income producing.

Seven years after becoming a signatory state to the Hague Convention on International Recovery of Child Support and Other Forms of Family Maintenance, Congress passed and the President signed into law implementing legislation which will gives the treaty the procedural rules to operate. The purpose of the treaty is to provide a relatively uniform and consistent process among the signatory states for enforcement of foreign support orders.

The U.S. still has yet to ratify the treaty, though Secretary of State John Kerry points out in the linked press release that the Senate has already given its advice and consent for ratification. Once ratified, the U.S. will need to create an administrative entity to handle the enforcement of the foreign orders. Since the states already have well-established domestic relations units, I would think the main role of any Federal entity would be to simply act as the gateway into the system of registering the Order with the state or local domestic relations unit where the payor resides and utilize the state’s enforcement mechanisms to obtain the support.

We have several expatriate or naturalized citizen clients. Some of their concerns stem from whether their former spouse will reside back in their home country and make the enforcement of things like custody or child support difficult, if not impossible. This treaty, which will hopefully expand beyond the European Union, Ukraine, and some Scandinavian countries, can be an effective tool for ensuring that a parent cannot abandon their financial obligations to their children just by leaving the country.

Part 2 of 2

4.            “The complaint is full of lies about me.”

Of course it is.  But by operation of law every allegation in the complaint itself is deemed denied until proven. So if your wife alleges that you make more money than she does and you should have to pay for her attorney, understand that this is nothing more than her claim and she will have to prove it at the appropriate time. You may have to prove someday that your view of these facts is correct and hers is not, but just because it’s in a pleading doesn’t make it true or believable.

Now, here is the hitch. What we just wrote is true about the divorce, support or custody complaint itself. But in the package of documents served on you may lurk separate motions or petitions that have a cover sheet telling you that you must answer in twenty days or risk bad things happening. DO NOT IGNORE these little documents. You do so at your peril. Also, a divorce complaint may be accompanied by an affidavit stating you have been separated for two or more years. That affidavit must also be answered in a timely manner.

5.            “There is no alimony in Pennsylvania.”

Guess again.  And while how and when alimony gets paid has changed markedly, especially in the past six years, there has always been alimony in Pennsylvania. In olden times it was granted in very unusual circumstances. Today it is more the rule than the exception.

6.            “It’s no fault, so you are divorced in ninety days.”

If only that were true. In Pennsylvania you cannot consent to a divorce until at least ninety days after the complaint is served. And then, only rarely do people both promptly file their consents. Even more bizarre, a spouse who sues you for divorce is not required to consent to the divorce he or she filed. It sounds strange but it happens all the time.

Some states like New Jersey take control of a divorce action and shepherd the parties through the process. Pennsylvania is not so sophisticated. People dally with the process and ignore the system. It makes the system grossly inefficient and expensive but after 33 years of experience, no one seems to care. All of us have had clients who professed to “change” the system once they got through it. None has followed through; probably because the system sapped their energy and their resources

I am sorry I doubted you, Alan Thicke
(Image: www.aaahighroads.com)
I am sorry I doubted you, Alan Thicke

Like many people, I have a healthy skepticism for infomercials or to-good-to-be-true schemes, so when I kept hearing Alan Thicke – famous for the 1980’s show “Growing Pains,” marrying a Miss World, and the real life dad to pop star Robin Thicke – pitch a tax forgiveness program, I dismissed it. I assumed it was probably another borderline-legal payday loan scheme, reverse mortgage concoction, or debt forgiveness system which prey on fiscally at-risk and naive.

The pitch was about a “Fresh Start Program” offered by the IRS which, it turns out, is a real thing. The basic tenants of the program are to allow for taxpayers to satisfy their back taxes and avoid tax liens on their property. There are three main elements to the program: first, the IRS will, in many cases, hold off on filing a Notice of Federal Tax Lien on amounts up to $10,000.00 which means a delay in the IRS attempts at collection. Secondly, the taxpayer can have up to 72 months of installment payments to pay back taxes up to $50,000.00. Longer installments or back taxes greater than $50,000.00 require some additional disclosures and scrutiny by the IRS. Finally, the program allows for the taxpayer to enter into an Offer in Compromise to pay-off back taxes for less than the amount they owe. That determination is made by the IRS if the Offer in Compromise is a better or more secure outcome for the IRS than other options.

Mr. Thicke is in the celebrity pitchman for a tax preparation company which specializes in the Fresh Start Program, but what he says about it has merit. For individuals who have gone through a lengthy and difficult divorce, they may have tax liabilities which arose before they had the financial resources to properly address them.  The IRS Fresh Start Program may be a viable option to offer some relief and stability to such individuals before they incur the adverse credit event of a Notice of Federal Tax Lien or collection attempts by the IRS. It is certainly worth exploring with your attorney and tax professional.

One of the difficult aspects of taking a complex case to trial is not the subject matter, necessarily, but the Court’s ability to schedule several consecutive days of trial.  Due to case volume, the court administrators can rarely carve out two or more consecutive days of trial without significant advance notice and, often, direct instruction and assistance from a judge’s chambers. As a result, a judge’s schedule may require you to have a week-long trial spread out over several weeks or months. Not surprisingly, attorneys, witnesses, and even the judges can lose some of the thread of arguments presented in such a disjointed fashion.

An alternative to trial is to take the case to arbitration.  An arbitrator is a third-party hired by the litigants to basically serve in the role of a judge-like finder of fact. The parties sign an arbitration of agreement and usually stipulate to certain ground rules for how they will handle the arbitration. For instance, some parties make the arbitration “binding;” in other words, the arbitrator’s decision becomes the law of the case. 

Another advantage to arbitration is to help limit costs through the arbitrator’s assistance in narrowing issues and avoiding some of the costs of broad discovery. Because the arbitrator is hired by the parties, he or she works on the litigants’ schedule – the arbitrator can set aside a full week for trial at a time that works for all involved and take the time to really hone in on issues without being at the mercy of the court’s availability. Rather than prolonged discovery schedules and waiting for trial, the arbitrator can help move the case to swift conclusion.

Eliminating the pressure of having to fit a two day trial into an afternoon before a judge helps the parties and the courts. Arbitration is one of many forms of “alternative dispute resolution” and by diverting cases off the Court’s docket and into arbitration, the parties are helping to free up the Court to adjudicate other cases.  There is the added advantage of the parties that unlike a court proceeding, the parties can agree to make the record and information disclosed within the mediation confidential.

Finally, utilizing an arbitrator is often like hiring a mediator. Having already reached an agreement to arbitrate and move the case out of court, it may also be possible for the arbitrator to help facilitate other agreements between the parties, be they discovery rules, stipulations of fact, or interim relief.  Agreements often lead to other agreements and once the parties start to work together, it may be possible to resolve the entire case. 

Even where settlement seems impossible, by moving their case into a venue where they will help set the schedule, parties will know that on a definite date they will have had their “day in court” and can expect a decision from a finder-of-fact. The certainty of those two elements, alone, may be its most attractive benefit.

Leslie Spoltore, a partner in our Wilmington, Delaware office, just posted a blog entry on an unusual alimony argument made on appeal to the Delaware Supreme Court.  The family court evaluated the ex-wife’s expenses when calculating alimony she would pay to her ex-husband and reduced the significant contributions she made to her church down to what it deemed a "reasonable" amount of $100.00.  The Court considered it a voluntary reduction in income. This is not unlike how Pennsylvania’s courts add back, for instance, voluntary contributions to 401(k) accounts when calculating child support and alimony pendete lite. 

On appeal, the ex-wife claimed that the Court’s assessment of alimony based on their consideration of her available income resulted in her inability to appropriately tithe her church and violated her First Amendment freedom of speech.

It is an interesting and creative argument, but did not carry her case and the Supreme Court ruled the family court could consider any factor it deems appropriate and nothing prohibited her from contributing as much as she would like to her church.

Read Leslie’s blog entry and link the decision here.

Pursuant to 23 Pa.C.S. Section 3701, the Court may award alimony, “as it deems reasonable,” if it finds that alimony is necessary. The Court looks at 17 factors to assist it in making the determination if alimony is necessary; and, if so, the nature, amount, duration, and manner of the payment of alimony. The factors are: 

 

(1) The relative earnings and earning capacities of the parties.

(2) The ages and the physical, mental and emotional conditions of the parties.

(3) The sources of income of both parties, including, but not limited to, medical, retirement, insurance or other benefits.

(4) The expectancies and inheritances of the parties.

(5) The duration of the marriage.

(6) The contribution by one party to the education, training or increased earning power of the other party.

(7) The extent to which the earning power, expenses or financial obligations of a party will be affected by reason of serving as the custodian of a minor child.

(8) The standard of living of the parties established during the marriage.

(9) The relative education of the parties and the time necessary to acquire sufficient education or training to enable the party seeking alimony to find appropriate employment.

(10) The relative assets and liabilities of the parties.

(11) The property brought to the marriage by either party.

(12) The contribution of a spouse as homemaker.

(13) The relative needs of the parties.

(14) The marital misconduct of either of the parties during the marriage. The marital misconduct of either of the parties from the date of final separation shall not be considered by the court in its determinations relative to alimony except that the court shall consider the abuse of one party by the other party. As used in this paragraph, “abuse” shall have the meaning given to it under section 6102 (relating to definitions).

(15) The Federal, State and local tax ramifications of the alimony award.

(16) Whether the party seeking alimony lacks sufficient property, including, but not limited to, property distributed under Chapter 35 (relating to property rights), to provide for the party’s reasonable needs.

(17) Whether the party seeking alimony is incapable of self-support through appropriate employment.

 

As you can see, one of the 17 factors is the marital misconduct of the parties during the marriage (not after the parties’ separated). Marital misconduct includes having an affair. Oftentimes clients are surprised (and disappointed) to find out that in practice, the marital misconduct of a party plays only a small role in the determination regarding alimony. Usually what is of more importance to the Court is the financial status of both parties, the health of the parties, who has custody of the children, and if alimony needed to support the other party’s reasonable needs.

 

I get asked this question a lot: "Is there alimony is Pennsylvania?" My response is "Yes." The next question usually is: "Will I get alimony?" or "Will I have to pay alimony?" My response depends on the case, but the simple answer is "You might." The Divorce Code at 23 Pa.C.S.A. 3701 states that when a divorce decree has been entered, "The court may allow alimony, as it deems reasonable… only if it finds that alimony is necessary." To determine if alimony is reasonable and necessary the Court looks at the following 17 factors:

 

(1) The relative earnings and earning capacities of the parties.

(2) The ages and the physical, mental and emotional conditions of the parties.

(3) The sources of income of both parties, including, but not limited to, medical, retirement, insurance or other benefits.

(4) The expectancies and inheritances of the parties.

(5) The duration of the marriage.

(6) The contribution by one party to the education, training or increased earning power of the other party.

(7) The extent to which the earning power, expenses or financial obligations of a party will be affected by reason of serving as the custodian of a minor child.

(8) The standard of living of the parties established during the marriage.

(9) The relative education of the parties and the time necessary to acquire sufficient education or training to enable the party seeking alimony to find appropriate employment.

(10) The relative assets and liabilities of the parties.

(11) The property brought to the marriage by either party.

(12) The contribution of a spouse as homemaker.

(13) The relative needs of the parties.

(14) The marital misconduct of either of the parties during the marriage. The marital misconduct of either of the parties from the date of final separation shall not be considered by the court in its determinations relative to alimony except that the court shall consider the abuse of one party by the other party. 

 

(15) The Federal, State and local tax ramifications of the alimony award.

(16) Whether the party seeking alimony lacks sufficient property, including, but not limited to, property distributed under Chapter 35 (relating to property rights), to provide for the party’s reasonable needs.

(17) Whether the party seeking alimony is incapable of self-support through appropriate employment.

 

Once the Court determines that alimony is reasonable and necessary, the Court has the discretion to determine the length of time a person pays/receives alimony. The Court may base it upon the length of the marriage, the time it would take the recipient spouse to find appropriate employment, or an event (such as a child graduating from high school or the recipient spouse becoming eligible for social security or retirement).

 

The Court has lots of discretion when it comes to alimony, but the bottom line is that alimony exists in Pennsylvania.