Alimony Reform and Child Support: What will Change?

UPDATE: The Massachusetts Alimony Reform Act of 2011 was signed by the Governor on September 26, 2011. The new law, which becomes effective March 1, 2012, makes significant changes to alimony in Massachusetts. Read more about these changes here.

The Massachusetts Alimony Reform Act of 2011 has been passed by both the House and the Senate and now awaits the Governor's signature. Once it is passed, which is almost assured at this point, there will be many questions about how it is implemented. The one I am receiving most often already is:

How will alimony be calculated in cases with child support?

The section of the Alimony Reform Act that addresses this question is Section 6(c):

"For purposes of setting an alimony order, the court shall exclude from its income calculation:

(1) Capital gain income and dividend and interest income which derives from assets equitably divided between the parties under Section 34; and

(2) Gross income which the court has already considered for setting a child support order whether pursuant to the Massachusetts Child Support Guidelines or otherwise; provided that nothing in this section shall limit the court’s discretion to cast a presumptive child support order under the Child Support Guidelines in terms of unallocated or undifferentiated alimony and child support."

As indicated, the Alimony Reform Act would exclude from any General Term Alimony calculation gross income which was already used to calculate child support. Since the Massachusetts Child Support Guidelines presumptively apply up to a total gross income of $250,000, many practitioners read this section to mean that any cases where the total gross income does not exceed $250,000 will not have alimony if they have child support. This is the most obvious reading of the section, and was the intention as described by one of the drafters on the Joint Task Force at a recent conference I attended (I won't call her out by name but she is a lawyer who clearly understood the implications).

There has been some outrage over this interpretation because it is one of the most significant changes this law makes to presumptive alimony in child support cases. However, there are exceptions, which I will detail below.

Before I tell you the exceptions, though, let's examine if this is truly unfair (or at least inconsistent with the rest of the Act):

Sample Case:

The Act contains a formula for calculating the maximum alimony award as follows: "the amount of alimony should generally not exceed the recipient’s need or 30 percent to 35 percent of the difference between the parties gross incomes established at the time of the order being issued."

This means that if the higher-earning spouse (let's use the name Chris) earns $125,000 and the lower-earning spouse (Pat) earns $25,000 in gross income, then alimony should not exceed $30,000 to $35,000 per year. This assumes no child support, that Pat has a need for support, and that the marriage is of sufficient length to warrant support. If we use the average of $32,500 then Chris' after payment income is $92,500 and Pat's is $57,500, and all of Pat's $57,500 will be taxable income. Assuming an effective tax rate of 15%, Pat ends up with $48,875 in net income.

Now let's add children. Chris still earns $125,000 and Pat earns $25,000. Chris is the non-custodial parent and Pat is the custodial parent. Child Support by the guidelines (assuming no other expenses for simplicity) is $510 per week, $26,520 per year. Since all of Chris' income was taken into account for child support guidelines, the Alimony Reform Act would indicate that none is left to consider for alimony. Chris' after payment income is $98,480 and Pat's is $51,520, but only $25,000 of this is taxable income to Pat. Again assuming an effective tax rate of 15%, Pat ends up with $47,770 in net income. In addition, Chris is still paying tax on $125,000 in income.

As you can see, although Pat is receiving almost $6,000 less in support, when you take into account the taxation of alimony vs. the tax-free nature of child support, the effective support that Pat is receiving from child support is only about $1,000 less. And this difference is not necessarily going to Chris, rather it is being taxed by Uncle Sam.

Given the tax-free nature of child support to the recipient, in cases where all of the income is considered in calculating child support, the Alimony Reform Act's exclusion of that income from calculating alimony is consistent with the caps that they have proposed on total support. Of course, these numbers won't work out the same at all income levels. The differences will be greater as the gap in incomes becomes greater. And while it may seem foolish to pay that extra money to the tax-man, the drafters did provide for an alternative by allowing the Judges to have discretion on assigning some of child support as unallocated support.

Exceptions:

Furthermore, there are exceptions which can also help crafty attorneys get around this child support limitation in the Alimony Reform Act. In setting any alimony order the Judges are not completely limited by this formula and can vary depending on numerous circumstances:

"Grounds for deviation may include:

(1) Advanced age; chronic illness; or unusual health circumstances of either party;

(2) Tax considerations applicable to the parties;

(3) Whether the payor spouse is providing health insurance and the cost of heath insurance for the recipient spouse;

(4) Whether the payor spouse has been ordered to secure life insurance for the benefit of the recipient spouse and the cost of such insurance;

(5) Sources and amounts of unearned income, including capital gains, interest and dividends, annuity and investment income from assets that were not allocated in the parties divorce;

(6) Significant premarital cohabitation that included economic partnership and/or marital separation of significant duration, each of which the court may consider in determining the length of the marriage;

(7) A party’s inability to provide for his or her own support by reason of physical or mental abuse by the payor;

(8) A party’s inability to provide for his or her own support by reason of a party’s deficiency’s of property, maintenance or employment opportunity; and

(9) Upon written findings, any other factor that the court deems relevant and material."

Aside from the fact that there is a broad catch-all in number 9, the most obvious and useful tool in arriving at a more fair balance of child support and alimony in any case is deviation factor number 2: Tax considerations applicable to the parties. In the example used above, even if Chris and Pat have children, restructuring the support paid by Chris to include some alimony and some child support could result in better tax treatment for the family overall, and greater net income for both.

The Alimony Reform Act simply puts the burden on parties to show these tax considerations to the Judge to assist them in deciding what cases are appropriate for variation. The Judge can then deviate from the guidelines completely, or choose to use a portion of Chris' income in calculating child support and a portion in calculating alimony, a result still consistent with the Section 6(c) limitation.

This ability to deviate, built into the Act, means that the child support limitation is not as limiting as some fear.

The Catch

Yes, there is always a catch. The problem in reaching agreements or judgments that split the total support payment between child support and alimony is that both of these types of payments have different duration. Under the Act, alimony duration is limited by a formula dependent on the length of the marriage, whereas child support duration is limited by the emancipation of the children. These dates may coincide but most likely will not, and the needs of either the children or the lower-earning spouse will need to be taken into account in creating such a deviation.

Finally, as with the rest of the Act, once it becomes effective we will have to see how the Courts of the Commonwealth implement it. Despite our opinion that the reading of this child support section is clear, we are  not on the Appeals or Supreme Court and until they rule there is certainly room for interpretation.

For more information about the Alimony Reform Act of 2011 check out MassAlimonyFormula.com

Click here for a Massachusetts Child Support Guidelines Worksheet.

Thank you to Julia Rueschemeyer for inspiring us to finally write this post.

QUESTION OF THE WEEK: What happens if my spouse files for BANKRUPTCY in the middle of our DIVORCE?

When a bankruptcy is filed, all lawsuits against the debtor (the person filing the bankruptcy) are required to immediately stop. This is called the "automatic stay." If your spouse files for bankruptcy during your divorce case the automatic stay applies to the divorce case as well.

The divorce Judge may proceed on issues of child support, alimony and custody of children, but may not make any decisions relating to the division of assets and debts without the permission of the bankruptcy court, and any decisions made by the divorce Judge are reviewable by the bankruptcy Judge.

You should consult with an attorney that is familiar with both bankruptcy and divorce law and is admitted to practice in federal court because it may be neceesary to file Motions in the bankruptcy court to ensure that your rights to marital property are protected.

You have been appointed as Guardian, do you need to be appointed as Conservator, too?

When an individual is determined to be incapable of making independent decisions necessary for proper management of his or her life, a guardianship is often necessary. The form, or limits, to the scope of the guardianship (meaning what management authority is being transferred from the "incapacitated" individual to the guardian) depends on the circumstances of the individual. A guardianship may be permanent, temporary, or limited to particular decision-making authority.

A guardianship does not provide for the authority to manage the incapacitated individual's assets, unless the incapacitated person's only assets stem from monthly income. In order to manage existing assets of an incapacitated individual, a conservatorship is necessary.

Under a conservatorship, the incapacitated individual may actually lose the legal ability to manage their bank accounts, enter into contracts, or accrue debt, so that the conservator is responsible for these responsibilities. A conservatorship may be limited to certain financial decisions, such as the authority to pay for medical expenses.

If you would like more information on guardianships or conservatorships, or you would like to schedule a free one-hour consultation, contact the attorneys at Kelsey & Trask, P.C. by email or by calling 508 655-5980.

I'm Separated, Why Should I get Divorced? - Reason #3: Becoming a Legal Parent

Reason #3 Not to Wait: Becoming a Legal Parent

If your spouse is of child-bearing age and a woman, then it is possible (even if unlikely) for them to become impregnated by someone else. This is more likely if you are separated. In Massachusetts if a woman is married within 300 days prior to the birth of a child, then her spouse is legally the father of that child, whether or not he is the biological father. Being a legal parent comes with both obligations (child support, health insurance) and benefits (visitation, relationship). But if it's not your child do you want that responsibility?

It is possible to undo this legal presumption but it usually requires knowing who the biological father is and suing them. Now because you waited to get divorced you have two lawsuits instead of one and another party involved in the dispute (the biological father).

Read Reason #4: Remarriage.

Can I Prevent my Ex from Moving Our Children if they Still Live in-State?

As discussed in a previous post, M.G.L. c. 208 Section 30 states that a child who the Massachusetts' probate courts have jurisdiction over shall not be removed from the Commonwealth without consent of both parents or Order of the Court. This statute does not apply to vacations, but rather is intended to prevent the "removal" of children to another state of residence without permission of both parents or the Court's permission.

In a 2003 decision, the Massachusetts Appellate Court expanded this prohibition on removal to include relocation within the Commonwealth if the relocation would "involve significant disruption of the noncustodial parent's visitation rights and the parents cannot agree." D.C. v. J.S., 58 Mass. App. Ct. 351, 355-356 (2003).

If your ex is threatening to move to another part of the state with your children and it would significantly disrupt your parenting time with the children, then you can ask the Court to prevent this move. If the Court agrees that the move would significantly disrupt your parenting time then the court should apply the same standard as in a case involving a removal out of state. It may be prudent for a parent who wants to move, even within the Commonwealth, to ask the Court's permission if the other parent disagrees. This could prevent costly requirements if the Court disallowed the move afterwards.

What should I expect to learn at an Initial Divorce Consultation?

For many individuals who call our office, it is their first time speaking with an attorney.  They are nervous and know they need help with the divorce process but they have no idea what to expect.

Our first goal of an initial consultation is to reduce that anxiety by helping you understand what to expect.  We do this by explaining some basics about how divorce works in Massachusetts, and by obtaining some basic information about your specific case and the issues that you may face in dissolving your specific marriage.

Whether you meet with a mediator or an attorney for your divorce consultation, and whether the meeting is free or not, you should make sure that you are prepared to get the most out of that meeting.  To assist you in getting the most value out of your initial consultation we have prepared this list of helpful tips:

TIPS to prepare for your initial consultation:

1. Bring with you the following documents, if you have access to them:

A certified copy of your Marriage Certificate;
A copy of your last year's Income Tax Return with all schedules and attachments;
A copy of your credit report (to get one free report once a year from all three agencies go to annualcreditreport.com);
A copy of your and your spouse's most recent paystub; and
A copy of any court documents that have already been filed or served.

2. Write down any specific questions that you have so you don't forget to ask them at the meeting.

3. Write down your goals for the meeting, and tell the person you're meeting with why you are there. For example, if you just want information and aren't ready to file for divorce yet, make sure they know that because you may want information about marital mediation or counseling as well.

4. If you have decided to get divorced, write down your goals for the divorce process.  In other words what do you want to get out of your divorce, and what do you want your life to look like one year from now.

5. Ask at least the following questions:

What is divorce mediation and what are the pros and cons of mediation?
What is collaborative divorce and what are the pros and cons of collaborative divorce?
What are the pros and cons of filing a Complaint for Divorce and starting litigation?
Are you trained in either mediation or collaborative divorce?
Are my goals realistic?
How would you help me reach my goals?
How much of your practice is devoted to divorce work?
What is your hourly rate and retainer requirements?

Our final and most important recommendation is that you should hire an attorney or mediator that you believe you can trust.  While many people hire based on cost, the most important factor in deciding if you will be satisfied with how your case is handled is whether or not you believe you can trust your attorney or mediator.  Divorce involves intimate details of your life and often uncomfortable conversations.  If you don't trust your attorney or mediator and avoid these conversations your case will suffer and your goals may not be met.  Find someone that you believe you will work well with, even if it means interviewing multiple attorneys and mediators.

If you would like to learn more, click here to schedule a 1 hour free consultation with Attorney Kelsey.

Is my iTunes Account a Marital Asset?

In Massachusetts, everything that either party to a divorce action owns or owes, regardless of whether it was acquired during the marriage or not, is subject to division in a divorce case. How it might be divided is a different question, but in order for that evaluation to happen, all assets and liabilities must first be disclosed. Massachusetts requires individuals involved in divorce cases to submit financial statements disclosing all of their assets and liabilities within 45 days of opening a divorce case.

The assets to be listed on a financial statement are to include everything. This includes the most commonly thought of assets, such as physical assets (artwork, automobiles, jewelry, houses, etc.) and financial accounts (bank, investment, stock, retirement, etc.). This disclosure should also include items which you might not think about as assets.

One example of an asset that many people don't typically think about is their frequent flyer miles, which was parodied in the beginning of the movie Wedding Crashers (warning: link includes profanity).

In the digital age there are other digital assets (such as a significant iTunes library) which you may also not think of as a typical asset, but which should be disclosed. These are becoming more common as digital libraries can now include, games, movies and even books. A recent article on TechCrunch, What If You Could Legally Resell Your Digital Music? ReDigi May Have Found The Solution., suggests that companies may start brokering digital accounts, which could result in them being even easier to transfer, and therefore more similar to a traditional (non-digital) asset. Essentially your iTunes account of 200 CDs would be similar to actually owning 200 CDs. Of course, there may be restrictions on transferring these assets and any agreement should be mindful of recent legal decisions concerning the distribution of digital copyrighted materials.

While, a digital asset is subject to division in the resolution of a divorce case, they will not always have significant value and may be a non-issue. Failing to disclose an asset, however, could be a significant issue and open you to criticism and possible fraud or perjury allegations. Therefore, when completing your Financial Statement we always advise, err on the side of disclosure even if you have to include explanatory footnotes regarding value or restrictions on transfer.

To read more visit our post: The Financial Statement and the Importance of Honesty.