Who should get the deductions for the children for taxes?

The rule is fairly simple: the person who has the children more than 50% of the time gets to claim the children on taxes and then qualifies for head of household status.  You cannot change the head of household status by agreement as this is a firm rule.  You can change who claims the dependents by agreement and the delivery of the official IRS form.  See: IRS link for Releasing Dependency

This is one of the most magical areas of the law where parties can actually “create money” by exchanging dependents in certain situations.  This is usually done by the low wage earner giving the high wage earner one or more of the deductions.  This does increase the amount of child support being paid, but it also provides tax savings for the person paying.  So even though you are paying $100 extra a month, it may be that you will have tax savings of $150 a month.  You just created $250 a month that the family did not have before.

Although there are many variations on this, and it does not work for everyone, it is a great way to provide more money for everyone.

Regardless, whenever there is a child support order, I recommend that everyone adjust their withholdings on their paycheck to make sure you are receiving the all the money you are entitled to.  Money is tight and there is no reason have the government hold your money, interest free.

How do I calculate child support?

The court’s are required to use a complex mathematical formula to calculate child support.  This has been adapted by a number of different programs: i.e. Dissomaster and x spouse.  There is a free calculator available online that is used by child support services.  Child Support Calculator

Although all programs use the same formula, there can be variations between them that cause swings of sometime hundreds of dollars.

All programs function by starting with your gross monthly income and taking deductions from that income based on different factors that are allowed: State and Federal taxes; tax deductions (dependents), necessary work expenses; interest payments on mortgage and property tax payments; and mandatory (pension) retirement; health insurance.

Some deductions reduce your support – i.e. health insurance.  Other deductions increase your support – i.e. mortgage interest deduction.

Although it seems counter intuitive that a mandatory expense, like a mortgage, should increase your support payment, the reason is that the code assumes that the primary obligation is child support, before food, housing, clothing, etc.  It also calculates support after it does your deductions and when you have an mortgage interest payment, this means that you can deduct this from you can deduct this on your taxes.  When you deduct this on your taxes, you reduce the amount of tax you end up paying for the year.  When you reduce the amount of tax you pay, you have more money to pay support.  When you have more money to pay support, your support payment goes up.  If you are the person receiving support, it works the other way so that a mortgage interest payment that you make will reduce your support payment received.

What if my new spouse works?  How does that effect my support?

People are often concerned that their new spouses income will be used in considering support and don’t want to reveal this income to the court.  But really, you want your new spouses income considered.  New spouse income is only considered for a determination of what your tax bracket is, and is not considered as cash available for support.  So, if you spouses income pushes you into a higher federal tax bracket, then you will pay more in taxes to the government.  If you pay more taxes, then the you have less cash available for support.  If you have less cash available, then your support payment is reduced.  Again, if you are the payee, then this is reversed and your new spouse income will increase the support that you receive.

Is That Pre-marriage House Really Mine
Often, a residence will be owned before marriage and maintained by the parties during the marriage. The law has developed on this issue called Moore/Marsden. These were two cases which set the rule for how to deal with this issue.
The calculation is straightforward. The community is entitled to a return for the principal payments made during the marriage plus a percentage of any increase in equity from the date of marriage to the date of trial based on the mortgage payments made. By way of example: Husband uses his earnings during marriage to pay the mortgage which includes a $1,000 principal payment for three years during marriage ($36,000). The house was purchased prior to marriage by husband for $360,000. (10% of the original purchase price was paid down during the marriage.) During the marriage, the house appreciates $100,000. At the time of death or dissolution, the community is entitled to $46,000. $36,000 plus 10% of the increase in value, or $10,000. This is split by husband and wife and husband gets the house as his separate property.
What if there is very little equity in my separate property house at divorce
As is all too common these days, the house has decreased in value such that there is $20,000 of equity in the house that was purchased with a $20,000 down payment from husband prior to marriage. Despite how long the parties have made the mortgage payments during marriage, the entire equity in the residence goes back to the husband.
Refinancing a house purchased prior to marriage
If you refinance your residence during marriage, then you have paid down the original purchase price with the new loan. Therefore if the new loan pays off the original mortgage of $240,000, then the community has a 67% interest in the increase of equity. (240,000/360,000 equals 67%). If that equity increase is $100,000, then the community has a 67,000 interest in this increase. The only exception to this is if the bank looks only to the new spouse and only to his separate property residence when making the new loan. This is a hard standard to prove and often unsuccessful in the courts.
What if I improve the house during the marriage with my salary or an equity line of credit
The rule is that if you make capital improvements to the separate property house of your spouse that increases the value of the property, then you receive a credit for the monies paid toward that improvement, up to the increase in value caused by this improvement. If the family contributes $100,000 for new kitchens and bathrooms, and this increase the value of the residence by $40,000, then the community receives $40,000. However, the community may still liable for the $100,000 equity line of credit taken out to do this.
What if I sign a quitclaim in order to refinance a residence
Your friendly mortgage broker tells you that since your wife has bad credit, you can get a better rate if she is not on the loan and quitclaims the house to you. This will save you $500 a month and you and your wife decide this is a good idea. You never discuss the issue, but she assumes that you both still own the house and she will go back on the house. You forget to put her back on the house and after a divorce whose house is it? The case law is still in flux on this issue, but it is still the law that if you sign a quitclaim and are not put back on the residence, in the absence of a specific promise to put you back on, the house belongs to your spouse. Maybe that $500 wasn’t worth it after all.

Accounting 101

Division of community property is easy, unless of course it isn’t, and then you need to have others involved: Attorneys, accountants, mediators – But that, of course, is what we are trying to avoid.

The simplest form of division keeps a balance sheet. Each person gets an asset or a debt and that value is assigned to their column. A positive value is added to their total. A negative value is subtracted. When everything is assigned to each party, you add up the totals for each person. The idea is that each party will walk away with an equal amount of community property. In order to accomplish this, the person with more in their side of the column pays the other person until the two columns are equal.

This is the mathematical approach, but this is often not the most advisable when trying to talk about make decisions about money in a negotiation with your spouse. This mathematical analysis is something that you need to do before you have this discussion in order to understand where you are going and what you are willing to give up on. You need to know the numbers in order to make an informed and intelligent decision.

The best way to have a discussion with the other side is likely not to go through the hard numbers. If they are not prepared, this can only terrify them. It is best to discuss generalities. Who gets the car and the house. Furniture and furnishing. “You should take the visa. I’ll take the discover.” “My IRA is about the same as yours. We can each keep our own.”

Once you get the large details worked out, you can work down to more finite details. That way there is gradual realization of the mathematical realities.

Posted by Matthew Sheasby

Copyright 2010

Divorce Mediation Check List

Questions to be discussed:

___ Child Custody:
___ Physical
___ Legal

___ Child Visitation:
___ Holiday
___ Summer

___ Who will take which credit card/other debt
___ Who will take which car/vehicle
___ Who will keep the house:
___ Sell
___ When
___ Refinance
___ How long will someone have to refinance

___ Were there any inheritances and do you agree where the money went
___ List of Property:
___ Agreed Values
___ Disputed Values

___ How much money will each person need to live
___ What personal property will each person keep
___ Open new bank Accounts
___ Split available Savings – Keep Safe
___ Support (Careful with this one)

Documents needed:
___ Last three paychecks
___ Last Three Tax Returns
___ Current Bank account statements
___ Current Credit Card Statements
___ Student Loan Statements
___ Mortgage Statements
___ Life insurance statements
___ Investment account Statements
___ Retirement Account Statements
___ Budget for each spouse after separation
___ Registration for each vehicle

Posted By: Matthew Sheasby

Child Visitation Schedules

Now that the hard part is behind us, we move to the regular holiday schedule.

MONDAY AND FRIDAY HOLIDAYS
Most courts will set up a holiday schedule that tacks on the Monday or Friday holiday to whatever parent has the weekend. For example, Labor Day falls on a Monday, so if dad has the weekend under the normal schedule, then his visitation will be extended from Sunday evening until Monday evening. The other big Monday/Friday holiday for most parents is Labor Day, President’s Day, and MLK Day. These holidays typically follow the same schedule and, as a general rule, will cause each parent to have the holiday every other year. If it is big concern, you can each alternate these Monday/Friday holidays on an even/odd schedule, but this can create a situation where someone has the weekend and then the other parent has the one day holiday. As such, this is not the most ideal arrangement.

FOURTH OF JULY
Fourth of July is one of those holidays that simply needs to be split with one parent having even years and the other parent having odd years. Fourth of July should be defined as a 24 hour period commencing the morning of the 4th and continuing until the morning of the 5th.

CHILDREN’S BIRTHDAYS
I encourage parents not to be too concerned with their Children’s actual birth date(s). Babies and toddlers don’t know its their birthday, adolescents are happy to have two or three birthday celebrations, and older children want to spend their birthday with friends and not their annoying parents. Birthday days also change every year so chances are you will have custodial time, even if its just dinner, on your child’s birthday regularly. If you are doing a party, these area typically on the weekend and each parent can do the party on their respective weekends which frames the birthday. Who doesn’t love two parties anyway.

THANKSGIVING AND CHRISTMAS
These are usually tied together with the concept that whoever has Thanksgiving, the other parent gets the better part of Christmas.

Schools that have week long Thanksgiving Break leave the perfect opportunity to split the week with one parent having the first half (Friday to Wednesday), and the other parent having the second half (Wednesday to Sunday.)

If the school gets off on Wednesday then you alternate each year with Thanksgiving either Wednesday to Friday or Wednesday to Sunday. If you typically go away for Thanksgiving, the take the holiday throguh until Sunday to reduce stress. If no one goes away, then take the holiday through Friday and that way, the normal weekend schedules don’t get messed up. (More on this later).

Christmas break is usually split in half with one parent have the first half in even years and the second half in odd years. This used to be easier when school had a week before Christmas and a week afterward. However, this has become more complicated with the advent of schools getting out only days before Christmas. So one parent may have a week that is interrupted by the Christmas holiday, but chances are, this situation will be reversed for the other parent the next year.

Christmas itself is usually split into two 24 hour periods. Noon on the 24th until noon on the 25th and then noon on the 25th until noon on the 26th. Again this alternates each year so that one parent has the first period every other year. On a personal note, I always recommend that parents have these 24 hour periods fall as late as possible. It is always sad to me when a child opens all their presents on Christmas morning and has to rush out of the house for the exchange. Have the time period go to three or four on Christmas morning to give the child more time.

Again it depends on your families traditions. My family has Christmas Dinner at 5 pm and as such a late Christmas day is appropriate. Other families have a brunch or late lunch, in which case a noon exchange may be best solution.

Then of course there are those perfect situations where one parent’s family always has a large Christmas Eve celebration and the other always has a large Christmas Day celebration. If this is your circumstance, then you are on of the lucky ones.

NEW YEARS EVE AND DAY
Some parents want to alternate this holiday as well. I have never truly understood this. I personally have not been out on New Years Eve in 10 years and quite frankly would like to enjoy this holiday without children. But if you are so inclined, then you simply need to split this holiday into two 24 hour periods once again. The thing to contemplate with splitting New Years, is that no one will ever have an uninterrupted week with the children to go away, and it may be nice for at least one parent a year to have this opportunity, whether or not you elect to take advantage of it.

SPRING BREAK
Two week spring breaks should be split in half. One week Spring Breaks can be split in half or alternated on an even odd schedule. It depends on your traditions. If you go away for the break, then a full week on alternating years is going to make more sense. If you have to work and typically are unable to get away, then splitting the one week break on Wednesday may make the most sense.

JEWISH HOLIDAYS I have had people claim that they wanted all of Hanukkah or the entire week between Rosh HaShanah and Yom Kippur, but lets be honest, this is unrealistic except for the most religious of Jews. If these are important holidays to you, then they should be alternated as well.
In mixed faith households, I regularly hear that one parent never liked Christmas or railed against its consumer culture only to find at separation/divorce that that parent is suddenly demanding Christmas. Again, Christmas has transcended religion for most and has become a secular holiday. Further, if the children are getting presents from one parent, the other parent is not going to want to be left holding the bag, so do expect that your Jewish ex who joked about the Hanukkah bush, is suddenly going to want to share in this holiday; and quite frankly the court’s will oblige.

There are many other minor holidays that come throughout the year. Avoid the temptation to complicate the schedule any further with these and stick to the major ones. You could fill every weekend if you wanted to, but don’t do it.

The big complication comes with what happens to the alternating weekends after a holiday. The short holidays, it has no effect. The major issue are Christmas, Spring Break and Thanksgiving (if you elect to go through Sunday). The good news is that whatever method you choose, it will equally burden each of you. The idea of alternating weekends is to ensure that each parent has regular contact with the child. Under this analysis, it is better to have the weekends reset. If I have visitation over the last weekend of Winter Break, then I should not have the next weekend even if it would normally be mine for the sake of the child. There is also a practical matter. If I want to go camping on the weekend in May, and I am planning it six months before, it is easier to count weekends starting at Spring Break (when I know I have the last weekend), then it is to count weekends all the way from October the year before.

Posted by Matthew Sheasby

Previous – Custody Schedules

THE HEAT IS ON

What does it mean to set a holiday schedule? In many ways, it is an exercise in controlling your emotions and a realization that you will be missing some of the holidays, some of the time.

The good news is that this is often the easiest part of any separation as the time allotted to each parent is really set fairly securely in stone by the courts.

The most difficult aspect of this is summer, so lets deal with this first. The permutations on summer visitation are extensive, but fall into a few categories.

SET VACATION PERIOD
Most parents still continue to work during the summer, and as such, the summer visitation schedule is really more of a time that we try and figure out what our children can do during the day when we are at work so that they don’t get themselves into trouble. Accordingly, the custodial arrangement will still be the same and each parent will have one or two weeks during the summer for “vacation”. This is not necessary a time to leave town, but is often just simply uninterrupted visitation time. This can be two consecutive weeks or two non-consecutive 7 day periods.

However, some of the pitfalls that should be avoided are the dreaded tacking on of days. For instance: If it is my weekend, then I set my visitation to start on Sunday night for seven days, which really means that I end up with 9 or 10 days for my vacation period. This is fine, if everyone understands this and is on board with the concept. Then, it is fair to everyone and prevents arguments. If you think that you will say 7 days for vacation and then tack on time, you will find yourself in a battle later on down the road.

If “vacation” period is the choice of the parents for summer visitation, then you need to set up a rubric to decide who wins on the rare occasion when both parents want the same week. The best situation is to decide that in odd year one parent chooses vacation period by May 1 (or an earlier date if you or your ex are a planner) and in even years the other parent chooses the weeks by May 1.

WEEK ON WEEK OFF
This is self-explanatory and is often attractive as a way to both have a break (because let’s face it, we all need a break), and to insure that the custodial parent has some good quality time with the child when they are not in school. However, remember that the same rules apply in reference to your child’s sense of security. Just because it makes sense to you, doesn’t mean that it makes any sense to your child. They thrive on consistency and often need this as a means of establishing a home base. Summer is also the time that the kids are playing outside a lot and the absence of the child every other week can have an affect on his social relationship with the neighbors children.

ONE HALF OF THE SUMMER
Occasionally parents will split the summer in the middle and exchange. This is rarely a good idea and usually reserved for parents who live far apart.

FLIPPED SUMMER
This flips the schedule so that each parent has the other parents custodial schedule for the summer months. This is always a viable option as it allows the non-primary parent to get a sense of the day to day activities. Again, this may present an issue for the child who thrives on consistency in his day to day life.

Next – Developing a Holiday Schedule that Works

Posted by Matthew Sheasby

Previous – Common Custody Arrangements

One size does not fit all.

Remember, that one of the main benefits of mediation is the ability to design and modify a custodial time share that works best for your child. This is not intuitive and both parents need to understand that flexibility in this design is the key. The typical custody schedules mentioned in the last entry are nice starting places, that the parents can adjust as appropriate.

Coach your child’s sports team:

You may have a custody arrangement that designates one evening a week, but most sports teams have two practices a week. Coaching your child’s team is an ideal way to spend some more time with the child by designing the schedule to encompass both of the practice days for just the season You coach your child’s team and then take him to dinner after practice. This can add hours every week and facilitate bonding with the child, because remember it is not the amount of time, but how you spend it.

Make it a long weekend:

When we talk of a long weekend, we add an overnight either Thursday night or Sunday night to extend the weekend. This is often nice because it allows a weekend trip without having to get home early for the exchange. It also prevents Sunday from being broken up by the exchange.

Spend your time doing homework? We all know the joy we get by helping our child with homework, but doing homework with your child is one of those activities that we are all obligated to engage in. Depending on how we spend our time, it can be an opportunity for the child to increase his respect for you and allow you to bond with your child. If your schedule permits, you may wish split the responsibility for after school care and homework with the other parent with an exchange either after or before dinner. Combine this with a sports practice and you have the makings of significant quality time twice a week devoid of video games and other distractions.

Add a midweek visit to the seven day span:

If seven days is too long then give the other parent one or two evenings during your week. So for instance it is mom’s week, but dad has visits for a few hours on Tuesday evening, and vice-versa the next week. This can reduce the amount of time that each parent is away from the child while still allowing a week on week off equal time share. This can help mitigate some of the significance of a week on week off schedule.

Fly by the seat of your pants:

There is sometimes a tendency for parents to just say “I don’t want a set schedule. We get along and we will simply work it out”. Great! Although this is sometimes very successful, the pitfalls are out there. Let’s be honest, you are separating for a reason and so everything may not always be easy. Having a set schedule that you then agree to deviate from on an ongoing basis is a way to solve this problem. If there is ever a time that you and the other parent are having a disagreement about something, you can always revert back to the original time share until tensions subside.

I am not sure I have ever had a case where tensions have not arisen at one time or another. Often this comes from one parent finding a significant other who starts to interact with the child and then there is the new spouse. These are emotional events, as much as we want to say the other parent should move on, their power over the parents interaction can not be underestimated. We are all human.

Sometimes we all need time-outs, and the set schedule in the agreement can provide this time-out until cooler heads can prevail and the respect for your child’s needs can resurface.

Although not ideal, there is a kernel of litigation in every mediation. One parent is thinking that “If I give up time to the other parent, they may use it in court at a later time in an effort to make a temporary arrangement a permanent one.” This is true, and choices to allow more time can have an impact later in court. However, remember the whole reasons that you are in mediation is that you both understand that you don’t want the court making orders that control your life, and you both accepted that you will design what is in your child’s best interest. This may diverge at one point and you may need an expert or the court to assist you in this matter, but when it comes down to it, you are doing this for your child. If it makes sense for one parent to have extra time for the child’s good – then it makes sense for the parent to have extra time, regardless of what you want. And this is worth repeating: If it makes sense for one parent to have less time for the child’s good – then it makes sense for the parent to have less time, regardless of what you want.

Next: Holiday Time and Custody Arrangements

Copyright 2010

Previous – Child Custody Agreements

Week on Week Off - Although this is typically the first words out of a parent’s mouth, this arrangement is replete with difficulties in both its concept and its actualization. In short, it is usually a bad idea. However, it depends on the individual child who may find this ideal, especially as they get older and really would rather spend time in their room or on the phone than with either of you. It usually works best when both parents live very close to each other. The child will have neighborhood friends and haunts, and it is odd for him to disappear for a week while the other kids on the block play together. The child can come back and feel alienated from the other children, seeming more like an outsider at each of the neighborhoods, with no real home base. Although children differ, this home base can provide a necessary sense of stability for the child.

It can also be a difficult arrangement on the parents (I suppose we can be concerned about what they want for just a moment), as it is difficult to go from seeing your child every day to suddenly seeing them only once a week. As such, you will often find a lot of push-back from the stay at home parent to an arrangement of this sort. Therefore, pushing for the alternating week schedule can cause a huge problem in the mediation context. The bread winner seem to like this schedule because they believe that they can work long hours one week, and be more available for the child next. Although, realistically, this is typically more of a pipe dream.

Alternating Weekends/One night a week: Freeman Order - This arrangement is the traditional arrangement for custody where the bread winner will have every other weekend from Friday after school until Sunday evening and one evening or overnight every week. This is the arrangement that is most often ordered in courts and often defaulted to by the parties.

The advantages to this custody arrangement are that it provides both parents with weekend time (a critical component of any custody plan and a regularly required provision by the courts). Weekend time is really the only opportunity that parents have to spend long amounts of quality time with the child, and as such we want to make sure that each parent has weekend time.
The weekly visit in the evening also provides regular contact so that a parent never has to go more than a week without seeing the child. Of course, a week is still quite a long time.
This also provides a child with a firm home base to move forward from. This stability can be imperative for some children who need to have the security of a home base that keeps a semblance of consistency for them.
For children who are having problems in school, this arrangement can provide an opportunity to spend the majority of their school days in one house where they can establish a firm routine for their studies.

2-2-5 Schedule - This schedule assigns specific days for each parent, combined with alternating long weekends for each parent. For instance, mom will have every Monday after school until Wednesday after school and dad will have every Wednesday after school until Friday after school and the parent’s will alternate every other Friday after school until Monday after school. That way each parent has five days away from the child one week followed by two days away from the child the next week.

The advantages to this schedule are that there is some consistency for the child who knows what days he will be with mom and dad every week, while still securing that precious weekend time for each parent. It is also a true joint custody schedule.

Of course, depending on the child, this can still have its problems in terms of consistency and adaptation by the child. For a child who needs consistency in their primary residence, this can still pose significant issues in terms of school and other psychological needs.

Of course, these schedules are nice for the ease of drafting orders for the parents, but when it comes down to it, the needs of the child may require that a certain order is in place, even if that is detrimental to one of the parents. Moreover, when you reference the main benefit of mediation, the ability to adjust the schedule if it is not working, you need to understand that these schedules need to be adapted as you begin to see your child’s reaction to them. You may start with the Freeman order to provide security to the child right after separation, but decide that he is doing well with the plan and switch to a variation of the another schedule. Or you may start with the 2-2-5 schedule and realize that your child just isn’t doing well: school is suffering, he is not sleeping well, or seems more depressed than usual, and one parent may need to acquiesce and move the schedule to more of a Freeman order. You get to decide based on your child and his specific, unique needs, and that is the key.

Next: Variations of Common Custody Arrangements.

Posted by Matthew Sheasby, Family Law Attorney:
Sheasby, Cho & Middleton