Archive for October, 2011

MARICOPA COUNTY DIVORCE LAWYER DISCUSSES FINANCIAL, TAX, AND BANKRUPTCY IMPLICATIONS FOR CHILD SUPPORT, SPOUSAL SUPPORT, AND PROPERTY EQUALIZATION PAYMENTS

Monday, October 24th, 2011

Attorney Douglas Gardner Shares Considerations Regarding Financial Issues Common in Arizona Divorce Cases and Compares the Tax Treatment, Modifiability, and Bankruptcy Treatment of Child Support, Spousal Support, and Property Equalization Payments

As a divorce lawyer in Arizona, practicing in Maricopa and Pinal County, and throughout the state of Arizona, I am often confronted with financial issues in complex cases involving the categorization of payments from one party to another. While often the party receiving the funds is primarily concerned with only the dollar amount he or she will receive, and the party paying the funds is primarily concerned with only the amount he or she will be paying each month, there are additional considerations that each side should seriously consider. Often the parties and experienced attorneys can carefully craft an agreement that is mutually beneficial to both parties by classifying how funds will be paid, as child support, spousal support, payment of attorneys’ fees, and as a property equalization payment or business buyout.

In considering the various forms of payment that can be made by one party to another in a divorce case, divorcing parties need to remember that $1 for spousal support is different than $1 of child support, which is different than $1 paid for attorneys fees, and these are all different than $1 for a property equalization payment or business buyout. The primary differences are tax issues, modifiability, the effect on other payments, and dischargeability in bankruptcy.

Child support is taxable to the paying party, and paid with post tax dollars. The receiving party will receive the child support tax free, and is not required to pay taxes on this as income. Accordingly, paying $1 of child support requires the paying party to earn $1.30 or some other amount in order to first pay 30% or the appropriate amount of taxes and have the $1 remaining. Child support can be modified at any time based upon an increase or decrease in either party’s income, a change in the cost of medical insurance, the emancipation of children, and for various other reasons. Child support cannot be discharged in bankruptcy if things really go south, but as indicated above, if things get too bad, the paying party can ask the Court to reduce what he or she owes moving forward. Care must be taken to modify child support quickly, as arrearages once built up cannot be discharged or modified and must be paid.

Spousal support provides a tax break to the paying party. When the paying party pays $1 in spousal support, this comes off the paying party’s income before determining the taxable income. The receiving party would then need to claim this as income and pay applicable income taxes. This is often beneficial to the parties, as the receiving party will generally pay at a lower tax rate than the paying party. Spousal support is generally modifiable, and terminates upon the death of either party or upon the receiving party remarrying. Similar to child support, the modification can be based upon a change in financial circumstances. By agreement or contract, the parties can agree to an amount for spousal support that would be non-modifiable, which prevents either party from asking the court to increase or decrease the amount or the duration. Even non-modifiable spousal support will terminate upon either party’s death or the receiving party’s remarriage (unless specifically agreed to be non-terminable also). Non-modifiable spousal support is a double edged sword, meaning it can protect the paying party from the receiving party asking to increase or extend the support, but may also prevent the paying party from reducing or pre-maturely ending the support if the paying party’s finances decline dramatically. Spousal support cannot be discharged in bankruptcy, making the risk of non-modifiable spousal support even more risky, as there is no court to which the paying party can seek to get out of the obligation even if he or she becomes disabled or has other serious financial difficulties. One other advantage of spousal support to the paying party is that it reduces the paying party’s income and increases the receiving party’s income in the child support calculations, which reduces the child support obligation.

A property equalization payment or business buyout will not be included in the receiving party’s income for calculating child support, and should have no effect on child support amounts. Additionally, the paying party will not receive any tax break or reduction in taxable income as they would from spousal support. The paying party must pay equalization payments with after tax dollars. The receiving party receives this income tax free. A business buyout or equalization payment is not modifiable once entered and the time for appeal has concluded, and the obligation continues regardless of the receiving party’s death (the paying party would still owe the ex-spouse’s heirs), the paying party’s death (the receiving party would have a claim against the paying party’s estate) or the receiving party’s remarriage. Money owed to a former spouse may, however, be discharged in a Chapter 13 bankruptcy (which requires payments to your creditors for 3-5 years) if the necessary qualifications are met. This may be important if the paying party experiences any severe financial decline and can no longer afford to pay the equalization amount.

The final method for transferring money from one party to another in a divorce or family law case relates to the payment of attorneys fees. The Court can order (or the parties can agree) to have one party pay all or a part of the other party’s fees. In Arizona, generally both parties are required to pay their own attorneys fees and costs. The court can, however, consider the financial positions of the parties and the reasonableness of the positions taken by the parties, and order one party to pay all or a part of the other party’s fees. Attorney fees are paid with after tax income, have no impact on child support calculations, and cannot be modifies once the time for appeal has expired. Attorneys fees can in many cases be discharged in a Chapter 13 bankruptcy, but not in all cases.

If you are going through a divorce and need legal advise regarding financial issues such as attorneys fees, child support, spousal support, and a business buyout or other property equalization, please call 800-899-2730 and ask to speak with Douglas C. Gardner, or visit our website at yourarizonadivorcelawyer.com.

ARIZONA ATTORNEY DISCUSSES BALANCE BETWEEN PRIVACY OF PARENTS AND CHILDREN’S HEALTH AND SAFETY:

Tuesday, October 4th, 2011

Tempe Attorney Douglas C. Gardner Interviewed by Wall Street Journal Regarding Obesity in Divorce Cases

In many custody cases, the court is required to balance the right of both parents to privacy after a divorce or separation, with the needs of the children as to protection, health, and safety. While Courts desire to allow both parents to raise their children in autonomy from the Courts and the other parent, the Court will get involved when required to do so for the protection, health, and safety of the children.

As I was returning from a long morning trial, I was recently contacted by a reporter from the Wall Street Journal, who was doing a story on obesity issues in divorce cases, and the effect of obesity of the parents or the child on custody and parenting time issues. The reporter was looking for examples where the obesity of one of the parents was an issue as to the fitness of that parent to care of the children, as well as examples of cases in which the obesity of the child was an issue in parenting.

Under Arizona law, the Court is required in contested custody cases to consider the mental and physical health of the parents and children involved. Courts must therefore consider the obesity of parents or children in rendering custody and parenting time decisions. In cases where the obesity of one parent prevents that parent from caring for the children, the Court can award primary custody to the other parent to ensure that the children are properly cared for.

Obesity arises more often in divorce cases with regard to the weight or health of the children involved. Such an issue can arise when one parent is concerned about the health of the child and wishes to place the child on a restricted or special diet, while the other parent believes that the child is “just a kid” and needs to enjoy life to its fullest and not worry about weight issues until the child is older and has a better understanding of nutrition. I have been involved in cases where I represented the parents taking each side of this hypothetical issue.

The parent wanting to let the child “just be a kid” may feel that the child is only slightly overweight, and will grow out of it when the child hits the next growth spurt. The parent wanting to restrict the child’s diet may see a trend towards obesity, and wants to help the child form life-long health habits that will improve health.

In cases where one parent is a “health nut” and chooses to have only health foods in that parent’s house, but the child is a normal, healthy, skinny child, the Court will not require that the second parent similarly hold the children to the same diet as when in the first parent’s home. In such a case, the Court generally does not want to interfere with either parent’s right to raise the child in a way that that parent feels is best. The judge does not want to order that soda and chips are a health hazard. In this example, the parents’ rights of privacy win the balancing test as there is no genuine health and safety issue.

Let’s take another example where the health and safety issue is sufficient to overcome the parent’s rights to privacy. Imagine a child that has diabetes. In such a case, it becomes more readily clear that the diet of the child is a “health and safety” issue. The chips and soda that were no big deal in the first example, could now cause serious harm to the child. In cases of diabetes, Judges will quickly intervene if a parent refuses to adhere to a doctor prescribed diet. In extreme cases, the Court may restrict the parenting time of a parent who consistently refuses to follow a specifically prescribed diet.

To win these custody cases, my job, as your attorney, is to help define your case as either a privacy issue or a health and safety issue, and to present your case to the Court supporting the case as you see it.

If you are going through a divorce, or if you have been required to return back to court because of a disagreement as to parenting time or custody issues, please call 800-899-2730 and ask to speak with Douglas C. Gardner, or visit our website at yourarizonadivorcelawyer.com.