Tax Reform Bill Puts Alimony Deductibility on the Chopping BlockNovember 3, 2017
Hidden deep within the proposed Republican tax bill entitled the “Tax Cuts and Jobs Act” (Sec. 1309, Pages 122-126) published yesterday is a scarcely publicized provision that eliminates the long-standing tax deductibility of alimony payments. While this prospective provision will impact agreements/judgments entered after January 1, 2018, the provision, if adopted, amounts to a significant paradigm shift in the way that alimony payments have been treated by both the payor and payee. Those individuals currently in negotiations and practitioners should be aware of this possible legal landscape change. If adopted, it is unknown how this would impact alimony and child support calculations going forward. To view the entire bill, please click on the attached hyperlink: https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf
Related Practice: Family Law
Attorney: Sean Alden Smith
A Warning to Parents Litigating College Expenses in the Family CourtFebruary 24, 2017
In a recent decision, Ricci v. Ricci, the Appellate Division addressed emancipation and parents’ obligation to pay college costs for a child who has left the parent’s home. This case is unique in that it involved divorced parents who agreed their daughter, Caitlyn, should be emancipated. Caitlyn disagreed and legally intervened, causing years of litigation which – according to the Appellate Division – has only just begun.
There was no dispute that Caitlyn had disciplinary problems which began in high school. These issues, which continued after Caitlyn graduated in 2012, caused significant family strife. In February 2013, at the age of nineteen (19), Caitlyn moved from her mother’s home to reside with her grandparents. Based on Caitlyn’s conduct and what the Ricci parents perceived to be an obvious desire to be independent of their control, Caitlyn’s parents agreed it was no longer necessary or appropriate to continue supporting their daughter financially. The parents signed a Consent Order emancipating Caitlyn and stopping child support.
Legal action followed, and Caitlyn asked the Court to vacate the Consent Order and require her parents to provide financial support for college. The parents objected, but two Orders were subsequently entered against them “un-emancipating” Caitlyn and requiring them to contribute towards her college tuition. The Ricci parents appealed.
The Appellate Division’s decision outlined the law governing emancipation and college contribution in New Jersey, and found that neither issue was properly considered. The Court first advised there should have been an examination of the events triggering Caitlyn’s departure from her mother’s home in 2013 and her subsequent emancipation. Following existing law, the Court advised: when determining if a child should be emancipated, judges must focus on whether that child has moved beyond the influence of his or her parents and obtained total independence from them.
Second, the Court could not uphold the conclusion that Caitlyn had been un-emancipated, since the trial court did not make the required findings or hold a plenary hearing (essentially a shortened trial) on the issue. Because there was no requisite finding of un-emancipation, the Order requiring the Riccis to pay for Caitlyn’s college expenses was also improper and had to be vacated. In remanding the matter back to the trial court for a hearing, the Court underscored that the threshold question of emancipation is fact-sensitive and must precede any consideration of a parent’s obligation to contribute towards the cost of college. In other words, Caitlyn will first have to prove she was un-emancipated before the trial court can conduct an analysis about whether her parents should be required to contribute towards her college expenses.
The Appellate Division got it right in the Ricci case; i.e., the Court identified a series of procedural mistakes and ultimately remanded the case to the trial court for the proper proceedings. That’s because under New Jersey law, any time there is a significant factual dispute between the parties (which almost always occurs in Family Court matters), a plenary hearing is required. But there is some truth to the legal maxim “justice delayed is justice denied”, and plenary hearings often take months or even years to complete. Therein lies the issue. By affording the Riccis their “day in court”, the Appellate Division effectively ensured this litigation won’t be ending soon. Practically speaking, the Riccis could be sharing the cost of Caitlyn’s wedding before they resolve college costs.
Despite its holding, the Appellate Division acknowledged the trial court judges in this case made the best equitable decisions based on what was before them. They did so without requiring a plenary hearing – recognizing the limited resources of the parties and the court. This type of “swift justice” is something practitioners demand on a regular basis. However, judges will often avoid this because it’s technically contrary to applicable law and leaves most litigants feeling unsatisfied. The bottom line: litigation in Family Court is often a “no-win” for both parents and children. Although easier said than done, a family feud is best resolved without involving the courts and it’s worth exploring mediation or other forms of dispute resolution.
Related Practice: Family Law
Sometimes Honesty is Still the Best PolicyApril 15, 2016
In the recently published decision of Taormina-Bisbing v. Bisbing, the Appellate Division examined the effect of a non-relocation agreement on a subsequent request by one parent to relocate to another state.
The case involved a relocation application, which is what a primary custodial parent files when he or she want to move out of state with the children. These cases are generally governed by a case called Baures v. Lewis, 167 N.J. 91 (2001). Under Baures, the moving party must first show there is a good faith reason for the move. Then, they must demonstrate the move will not be “inimical” to the child’s interests. There are 12 factors a court must assess in conducting a Baures analysis, but overall it’s a relatively easy standard to meet. A non-custodial parent seeking to relocate with the children is subject to a different standard. Because he/she is essentially asking the court for a change in custody, the request is determined by conducting a “best interest of the child” analysis. This is a much more difficult standard.
The parties in Bisbing separated in August of 2013. A few months later, the Wife began a long-distance relationship with man residing in Utah who had children from a previous marriage. The parties eventually entered into a Marital Settlement Agreement (“MSA”) in March 2014 and were divorced in April 2014. In their MSA, they agreed the Wife would have primary residential custody of the parties’ 8-year old twin girls on the condition that she would not relocate out of state. She also agreed to give the Husband “broad reasonable and liberal parenting time”.
One month after the divorce, the Wife informed the Husband she was quitting her job to become a stay-at-home mom (which she did). About eight months later, she called the Husband and told him she was marrying her significant other from Utah and asked for his consent to relocate with the children. The Husband refused and the Wife filed a motion. Without conducting a plenary hearing – which is usually required in relocation cases – the trial court found in favor of the Wife and allowed her to move to Utah. The Husband appealed. The Appellate Division reversed and remanded the case back to the trial court with a roadmap for a plenary hearing.
First, the trial court must determine whether the Wife negotiated the MSA in bad faith. In other words, the court must first decide whether the Wife knew of her plans to move to Utah when she was negotiating the MSA. If the Wife knew, she essentially manipulated the situation to obtain residential custody so her removal application would be subject to the more favorable (Baures) standard. Under such circumstances, the Court instructed, the Husband would have to be restored to the position he was in before the Final Judgment of Divorce. The trial court would then apply the best interest standard and make a new determination on the issue of custody. This would force the Wife to prove it would be in the children’s best interest to stay with her and move to Utah.
If, however, it is found that she did not negotiate in bad faith, the trial court should next consider whether the Wife proved a substantial unanticipated change in circumstances warranting avoidance of the agreed-upon non-relocation provision in the MSA. This would trigger a Baures analysis, which would require the Wife to show only that moving with the children is not inimical to the children’s interest.
The Bisbing decision does not necessarily clarify an ambiguous issue or create a new test or standard to be applied in relocation cases. However, the Appellate Division did openly acknowledge a somewhat harsh reality of the laws of this State: once a parent obtains primary residential custody, it’s much easier for him or her to obtain an Order permitting an out-of-state relocation (since the burden would be placed on the parent who wants to stay in New Jersey to show that removal/relocation is against the children’s interests). Matrimonial practitioners should take time to explain this to clients and ask more questions regarding future plans when negotiating settlement agreements. Moreover, although it’s still not entirely clear where to draw the line, this case seems to suggest that a party who knows or strongly suspects circumstances are likely to change soon after an agreement is signed, may later be accused of “negotiating in bad faith”. Therefore, it is important for a party to disclose any intentions he or she may have of moving out of state, marrying, etc., prior to signing an agreement, as these major events typically constitute a change in circumstances warranting a modification of custody/parenting time, alimony/child support, or even equitable distribution.
Related Practice: Family Law
Attorney: Kelley Rutkowski
New Guidance on Parents’ Duty to Contribute Toward Child’s Car InsuranceMarch 9, 2016
For the parent of primary residence, child support rarely feels like enough funds to make ends meet and because of this there is often a battle over what expenses are covered by the payments. The New Jersey Court Rules outline categories that are covered including housing, food, clothing, and transportation with descriptions and exceptions for each but it is impossible to define all potential expenses that may arise in a child’s lifetime. When expenses are omitted from the Court Rules parents are left wondering and potentially litigating over whether a certain expense is included in child support or whether it requires an additional contribution. Thanks to a recent Chancery Division case there is now some guidance on the issue of car insurance when a teenager obtains his or her driver’s license.
In the case of Fichter v. Fichter, the Chancery Division ruled that “a court may in its discretion find good cause to deviate from the guidelines and require each parent to contribute additional reasonable and affordable monies towards a newly licensed teenage driver’s car insurance.” The court found that the contribution would fall outside the regular child support payment. The ruling is a clarification of the transportation category in the New Jersey Court Rules which states that the purchase price and expenses associated with a new vehicle for a teenage driver were not included in the guidelines. This exception to the guidelines was criticized in the Fichter opinion for its bias against families who cannot afford to purchase a new vehicle but must still pay the increase in auto insurance. The court found that it would be unfair to require families who do not purchase a new car to attempt to cover the increased auto insurance on child support alone.
Although the Fichter decision will give courts some direction on how to allocate the cost of car insurance for new unemancipated drivers, it does not close the door on future litigation. Rather than provide a bright line rule the allocation is within the discretion of the court and can be ordered upon a showing of good cause. The good cause referenced in the Fichter decision may be broad enough to cover most families as it includes the “special nature and importance of car insurance and the need to adequately protect a child as a newly licensed driver.” It will be interesting to see how judges and practitioners apply the Fichter decision to future cases and negotiations.
Does a Change in Minimum Wage Equate to a Change in Circumstances?February 9, 2016
There has been a movement throughout the country to raise minimum wage and New Jersey joined the discussion on February 3, 2016 when Assembly Speaker Vincent Prieto and Assemblyman John Wisniewski announced their plan to introduce a bill seeking to raise the state’s minimum wage to $15 per hour. If passed, an increase to minimum wage could have significant effects on alimony and child support calculations across the state.
In calculating child support and alimony, judges are given the discretion to impute income when either parent is voluntarily underemployed or unemployed. In these cases, the court can look at the individual’s salary history, estimate his or her earning ability based on the New Jersey Department of Labor Statistics, or impute an amount equal to full time employment at minimum wage. In the 2015 version of the New Jersey Court Rules, minimum wage was set at $8.25 per hour for 40 hours per week or $17,160 per year. If the minimum wage is raised to $15 per hour, the annual wage will rise to $31,200, almost double the previous imputation.
While the bill would affect future alimony and child support calculations, it also raises the question as to whether it would trigger a change in circumstance argument for previous support awards that were based on the old minimum wage. Recipients of support based on imputation may have an argument to return to court and impute the payor’s income at $31,200 in order to receive an increase in their alimony or child support. Although speculation suggests that the bill is unlikely to pass, any raise in minimum wage can affect support calculations based on imputed income and should be considered when calculating awards.
Important Changes to Child Support and Emancipation in New JerseyFebruary 8, 2016
The State of New Jersey continues to look for ways to streamline the financial aspects of matrimonial cases with the recent supplement to the statute on child support, which was signed into law by Governor Christie on January 19, 2016. The new child support statute hopes to resolve issues that previously plagued cases when children reached the age of emancipation, but will likely cause confusion and litigation when it goes into effect on February 1, 2017.
The most significant change under the new statute is that child support can terminate without a court order when a child turns 19. It then becomes the recipient’s obligation to demonstrate that child support should continue, either because the child is still in high school or pursuing a post-secondary education (such as college), or has a physical or mental disability. Previously, the burden was on the paying parent to petition the court for an Order emancipating their child. Now, this process can happen automatically.
To effectuate the new procedure, the statute calls for notices to be sent to parents who pay and receive child support through Probation. Probation must provide two notices to parents advising them that the child support will terminate. The first notice must be sent 180 days prior to the child’s 19th birthday and the second must be sent 90 days later. If child support is not paid through Probation (meaning, one parent pays the other directly) there will be no notice, and if there is no property settlement agreement or governing order, the payor can automatically stop paying. In that case, the recipient would need to show cause why child support should resume.
In addition to the automatic termination of child support, the new statute also states that child support will not continue after a child turns 23 years old. Under existing case law, there was no “cut off” point for child support. Though, this particular clause does not demonstrate a significant shift in the law because many settlement agreements include a final age when child support will terminate. Additionally, most parents consider the child’s 23rd birthday as an end date for support, based on the presumption that their child will have graduated from college by then and established some level financial independence.
There are several issues with the new statute that will likely occur in a year when parents begin to be affected by the changes. First, parents who do not pay or receive child support through Probation may have little notice of the changes. This will be detrimental to the paying parent, who may continue to make payments without knowledge of his or her right to stop, as well as the recipient, who may be confused and frustrated when the other parent suddenly stops making payments. Second, the statute will have little to no change for parents with multiple children under the age of 19, as any modification of child support after one child’s emancipation will require consent or court involvement. Third, the statute as originally drafted allowed a child to bring a claim on their own behalf for child support to continue beyond the age of 19. But since that language was removed, only a custodial parent can petition for continued child support. Although it is rare for children to have to move for child support, the statute now expressly prevents it.
As the statute goes into implementation in February of 2017, we will likely see other issues arise and gain more insight as courts make decisions based on the changes. In the meantime, parents have one year to educate themselves on the law and determine how the changes will affect their families. Please contact our family law department if you have further questions about the statute and how it may affect your child support award or payments.
Agreement Provision Linking Spousal Support Payment to Children's Education Invalidates Alimony DeductionApril 17, 2014
April 14th is a tough day for most Americans as we rush to complete our taxes, but it was especially difficult for Allen H. Johnson because the Tax Court ruled that his alimony payments were not deductable because under the Tax Code they constitute child support.
Like most divorced spouses who pay alimony to their ex-partner, Mr. Johnson deducted his alimony payments on his tax return and his ex-wife included the payments as gross income on hers. Under the Tax Code, a payment is alimony if made in cash and:
- The payment is received by a spouse under a divorce or separation instrument;
- The divorce or separation instrument does not state that the payment is neither includible in gross income nor allowable as a deduction;
- The payor and payee spouses are not members of the same household when the payment is made; and
- The payment obligation terminates at the death of the payee spouse and there is no liability to make either a cash or a property payment as a substitute for the payment after the death of the payee spouse.
Johnson v. Comm'r, T.C. Memo. 2014-67.
Mr. Johnson's separation agreement with his ex-wife complied with the Tax Code requirements for alimony, except it failed to take into account the definition of child support under the Code. Under I.R.C. § 71(c)(2) support subject to "contingencies involving [a] child" are considered child support. The spousal support for Mr. Johnson's ex-wife would terminate upon the occurrence of several events, one being their youngest child's graduation from high school. This contingency qualified all spousal support as child support under the tax code despite the fact that Mr. Johnson was paying separate child support. The Tax Court held that the intent of the parties does not apply, only the specific requirements of section 71.
Many settlement agreements include language detailing when alimony will terminate, and often the termination date centers around events involving the children. Although the parties may intend the date to be used merely as a reference, or are factoring in the payee's ability to return to work after the children reach a certain age, the IRS will not take these factors into account for tax purposes. It is important that parties understand the tax implications of their settlement agreements because the consequences can have far reaching effects.
Related Practice: Family Law
Child's Right to SupportApril 7, 2014
News headlines across the country took sides over a New Jersey Superior Court case where 18 year-old Rachel Canning sued her parents over their failure to pay her high school tuition, child support, and college tuition. This would be a run of the mill case except for one fact; the family is still intact with both parents married.
The Canning case raises an interesting question regarding the right of the child to support. In New Jersey courts have the power to order divorced parents to pay child support and college costs for their children. The applicable case law requires a fact sensitive investigation to determine whether divorced parents are required to contribute to their child’s college education under the Newburgh v. Arrigo case. Although the child is most likely over the age of 18, the parents may still have a duty to provide support until emancipation, a determination that is not solely based on age. Up until the Canning case, the law has only been applied to children of divorced parents, essentially creating the argument that children of divorced parents have more rights than children of intact parents.
Rachel Canning recently dismissed her case after she moved back home with her parents, however the discussion of a child’s right to support during college will certainly continue. On March 24th, the New Jersey Senate Judiciary Committee approved a bill that would terminate child support once the child turns 19. Although a parent may petition for support to continue beyond the age of 19, the bill places that burden on the person receiving the funds, instead of on the person responsible for paying the support. As with previous cases, the bill makes no distinction between children of intact families and children of divorced families.
While much of the state has already made up their mind on the Rachel Canning case, the law is still unclear. Because the case was dismissed, we still do not know whether a judge would be willing to order child support for a child of an intact family, however as the law stands, if the child is not emancipated, the judge may have no other choice. Children, no matter what their family dynamic, have a right to support under the current laws. Therefore, it should make no difference whether the parents are married, separated, or divorced.
Related Practice: Family Law
Johnson v. BradshawMarch 14, 2014
Child support statutes and regulations vary from state to state but the Uniform Interstate Family Support Act ("UIFSA") unifies all states on enforcement. In a recent Superior Court decision the court looked at how to apply UIFSA when dealing with a temporary child support award when all parties no longer live in New Jersey.
The case, Johnson v. Bradshaw, involves the football player Ahmad Rashad Bradshaw who in 2011 was playing for the New York Giants and living in New Jersey. Bradshaw and Johnson had a child together who was born in Virginia. The child and Johnson never lived in New Jersey but Johnson brought an action for child support in the state. A temporary support award was entered with the intention that the parties would return for a full hearing after obtaining all necessary financial discovery. However, the parties did not return and Bradshaw left the New York Giants and moved to Virginia. Bradshaw then filed a motion to dismiss the complaint for lack of jurisdiction. In a case of first impression, the Superior Court ruled that although the court had power to enforce the child support award under UIFSA, now that all parties lived outside the state of New Jersey the Court could not modify the child support award even though it was temporary.
In many families after divorce or separation, one or both parents may move out of the state. If none of the parties or children remain in the state of New Jersey, New Jersey no longer has jurisdiction to modify the child support award. Even temporary awards cannot be modified because they too are considered child support and are covered under the same definition as permanent awards. Because each state has different statutes regarding procedures and standards for modification UIFSA may have a significant affect on a parent's ability to modify child support. What may constitute grounds for modification in New Jersey may no longer apply in another state.
Related Practice: Family Law
Child Support Modification Based on Child in College - Plenary Hearing Always Necessary?October 30, 2013
As more parents send their children to college, the issue of how to calculate child support for a child living away from home has increasingly become a concern. In 2012, the Appellate Division in Jacoby v. Jacoby attempted to clarify how child support should be calculated for a child living away at college.
While support for children under the age of 18 may be calculated using the New Jersey Child Support Guidelines, the Jacoby decision held that it would be unusual to apply the guidelines to a child attending college away from home because there are many expenses associated with a child in college that are not factored into the guidelines. The Jacoby decision even goes so far as to say that child support may increase for a child in college. Importantly, the court held that a child attending college away from home constitutes a change in circumstances, warranting a review of child support.
The Jacoby decision seemed to provide a clear answer to the calculation of child support for children away at college, but it simultaneously opened the door to an extremely fact sensitive investigation. Now courts must consider all the potential expenses incurred for the college student as well as possible grants, loans, scholarships and other income sources from the student.
In the recent, unpublished, Appellate Court decision, Freeman v. Freeman, the court remanded the issue of child support for the child attending college. The court held that the changed circumstances warranting a modification in child support was a fact sensitive question and that "a plenary hearing ordinarily would be required." The Freeman decision is not alone, and is just one example of the hurdles a parent may face when seeking a child support modification. What does this mean for the parent seeking a modification? This could spell a costly motion or even a plenary hearing to determine child support if the parents cannot agree.
For more information or if you would like to speak with an attorney, contact Diane Famula, Family Practice Coordinator at 973-364-8323 or email@example.com.
Related Practice: Family Law
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