Divorce and the Federal Child Tax Credit

One of the major financial headlines of the last few weeks has been the stalled Build Back Better bill. Intended to provide climate change funding, childcare breaks, and more, it will be interesting to see if any version of the bill is ultimately passed.

A large component of the bill was the child care tax credit, which had been extended and paid out throughout the last year. The bill currently contains a provision to continue with the expanded child tax credit, which has assisted with child poverty. It is assumed that some portion of the current expanded child tax credit will remain in the final bill, if passed, though it might not be as large a sum, available to as many families, or expanded for ten years as currently constructed.

The child tax credit is also something to consider in a divorce.

Child Tax Credit and Divorce

If you are going through a divorce, you want to make sure that you are receiving at least one half of the child tax credit. This sum is $500.00 per month per children over six, and $600.00 per month for children under six, although the actual sum you’ll receive is contingent upon your household income.

If your spouse’s bank account has been used for direct deposit, and your divorce is not finalized, then the government may be paying this money out directly to your ex. Or whoever is receiving the mail might be in control of the tax credit, which can add up to a decently large sum of money over time.

(But note that as of now there are no tax credits planned to go out in January, and even if the bill is ultimately passed, it will probably lead to a double payment in February ’22.)

If you are already divorced, then your Agreement might indicate how child tax credits will be handled. They are generally split between the parents. For instance, if there is one child then the first parent might claim that child in even years and the second in odd years. This has been somewhat complicated by the changes to the child tax credit for 2021, and the uncertainty about such credits in 2022.

If you have children, your divorce agreement should affirmatively address what will be done with the child tax credits. In certain circumstances, such as if a parent does not have custody, or if a spouse does not have sufficient income to benefit from a credit, then additional care may be required to address these issues.

Conclusion

With the uncertainty surrounding the Build Back Better bill, be certain to pay attention to how the law progresses and how federal child tax credits are treated in upcoming tax years.

If you have any questions about how child tax credits might impact your divorce, then be sure to discuss this issue with a competent lawyer in your jurisdiction.

Holiday Parenting Time and the Omicron Covid Variant

Covid-19, in its various forms, continues to wreak havoc on our lives and families. If you’re divorced, or contemplating a divorce, the Omicron Covid variant might be particularly tricky to navigate this holiday season.

Whether choosing to vaccinate your kids or not, or merely addressing alimony changes in the new, Covid-19 economy, Covid remains a pest and a game-changer in New Jersey divorce matters. In this blog post, we will review holiday parenting time law and discuss how the Omicron variant might impact our plans.

Holiday Parenting Time Agreements

In New Jersey divorce agreements, holidays are generally alternated between both parents based upon even and odd years.

For example, if the Mother had the children for Halloween in odd years, then the Father would have the children for Halloween in even years. For holidays with a multi-day component, the alternating might work as follows: Christmas Eve with Mother and Christmas Day with Father in Odd Years, and then flipped in Even Years.

The parties generally include such holiday parenting time language in their divorce agreements, or “MSA’s” (Marital Settlement Agreements). The more specific an agreement, the better, as a divorce agreement will serve as the “rulebook” to the parties’ post-divorce relationship. Thus a solid goal for any divorce practitioner should be to craft easily understood divorce agreements that do not lend themselves to creating future issues, disputes, and/or litigation.          

With that said, not every contingency can be planned for. When addressing “Black Swan” events such as COVID, sometimes the parties may need to return to the bargaining table so that they can work together in their children’s best interests.

Omicron Variant and Holiday Parenting Time

Unfortunately, we are confronting another “holiday season” impacted by Covid. This time by the swiftly moving Omicron variant, that makes it seem like half of the people you know are sick (at least here in New Jersey, an early hotspot for the latest variant.)

With ominous statements from public officials about the spread of Omicron this holiday season, it will be important to protect children this holiday season.

Unfortunately, as with vaccines, personal politics may play a role in making holiday plans this season. For instance, if your ex does not believe Omicron is a big deal, and it is their turn to exercise holiday parenting time this Christmas, then they might insist on bringing your children around others. This could not only be potentially dangerous for your children, but also for you and other vulnerable members of your household.

Alternatively, perhaps you have a partner who you believe is stopping you from attending a safe event. Either way, you will need to work all of this out, or face the necessity of filing emergent court motions this holiday season.

One of the difficult things about the New Jersey family law system, is that there are only two real options to pursue when disagreement strikes. You can either work it out between yourselves (with or without the assistance of lawyers) to draw up a consent order, or you can seek the assistance of the court. Motions are generally considered when seeking court assistance, but it takes at least twenty-four days, and more often a month or two for a Motion to be addressed. That leaves emergent actions for relief, known as Orders to Show Cause.

In order for An Order to Show Cause to be successful, you must generally demonstrate a serious risk of physical harm to yourself or your children. Whether or not an ex bringing your children to a holiday event this holiday season will constitute such harm will likely depend on the judge reviewing the papers. Although Covid has been impacting our lives for nearly two years now, the Omicron variant is something entirely new in the speed of its spread. To further complicate matters, there seems to be conflicting data at this time about how serious it is if you get sick with it.

Conclusion

If you’re confronting serious holiday parenting time issues this holiday season, it might make sense to schedule a consult with an experienced divorce lawyer of your choosing. The holidays only come around once a year, and there are no second chances in avoiding infection once someone is sick. It’s a difficult situation for all involved, with few clear answers.

Despite all these difficulties, we at Taylor Divorce Law, LLC are wishing you a peaceful and healthy holiday season and New Year.

Divorce for Professional Athletes

Being a professional athlete doesn’t just require talent and hard work, it also requires dedication and focus. Off the field issues can impact performance on the field. And because a professional athlete’s career is often truncated, every dollar counts.

Divorce for Moorestown and South Jersey professional athletes

Many professional athletes choose to reside in South Jersey, and particularly in Moorestown, New Jersey, where our office is located. With a quick commute to the stadiums, additional privacy, and great schools, South Jersey has a lot to offer those who can afford its high state taxes.

But a divorce is a difficult situation for anyone, and having access to a high net worth and income can only serve to complicate things.

Divorce for Professional Athletes

Many, but not all athletes will have signed a prenuptial agreement. A prenuptial agreement helps to simplify a New Jersey divorce. Professional athletes contemplating a marriage should consider a prenuptial agreement.

Prenuptial agreement or not, however, there are many issues that will need to be addressed in a prenuptial agreement. Those many include:

Alimony and Child Support for Professional Athletes

In New Jersey, alimony considers the income of both parties. That means not only past and present income, but consideration of what future income may be.

Professional athletes differ from other jobs because they often have a contract. This will often include guaranteed income and non-guaranteed income such as bonuses. Every sport has different salary structures. For instance, in baseball all contracts are guaranteed but in football there is often a mix of guaranteed and non-guaranteed income.

Of course, on the field income is merely one of the income opportunities available to professional athletes. There is also endorsement deals and media opportunities. Many athletes also own various business interests, such as car washes, restaurants, and car dealerships.

For these reasons, it can be tough to pin down a proper income for professional athletes for purposes of alimony.

In the appellate case of Strahan v. Strahan, (2008) featuring former New York Giant and media personality Michael Strahan, the court addressed some of these issues.

The Strahan’s had entered into a prenuptial agreement, but that did not stop years of divorce and post-divorce litigation/appeals, particularly on the issue of child support.

The parties’ experts had determined that the marital lifestyle (in or about 2007) was $1 million dollars per year. The trial court awarded base child support for the parties’ two children of $35,984 a year, plus supplemental child support of $200,000 a year because of Strahan’s high income. This did not include expenses not contemplated by child support such as medical insurance for the children, unreimbursed medical expenses, extracurricular expenses, and college costs. The court imputed no income to his wife, even though she was to receive millions of dollars in equitable distribution.

The appellate court agreed with Michael Strahan that the trial court had failed to make the specific findings of fact necessary to sustain the supplemental child support amount of $200,000 per year.

The Appellate Court found that the trial judge failed to make any analysis of the reasonableness of the expenses, and included many expenses in child support such as $27,000 a year in clothing and $30,000 a year in landscaping that seemed to be completely unreasonable or to not directly benefit the children at all.

Although in high income families, children are  entitled to the benefit of financial advantages available to them, “the custodial parent bears the burden of establishing the reasonableness of those expenses.”   Accardi v. Accardi, 369 N.J.Super. 75, 88, 848 A.2d 44 (App.Div.2004).

Alimony and child support must also be calculated while considering the unique costs of being a professional athlete. Agent fees, high taxes, publicists, financial advisors, and so forth may reduce the size of the pie, regardless of how large it is. The use of trusts and other complex financial instruments may be utilized. There are extra costs for security, and many other expenses non-public figures do not have to consider.

Division of Assets

In New Jersey, equitable distribution is not merely a 50%-50% split. Care is given to consider what is “fair and equitable.” Certain classes of assets are exempt, such as premarital funds, inherited funds, gifted funds, and personal injury funds.

Professional athletes often have high income and high assets, but care must be given to ensure an equitable distribution of assets and any debts.

Child Custody

The life of a professional athlete can make child care difficult even in the best of times. The amount of travel and training a professional athlete must undertake throws out the usual child care schedule. A workable plan must be achieved, along with language that allows for reconsideration of child custody when the athlete retires.

The issue of removal from the state must also be considered. If a player is traded or signs with a new team, that could also send a marital settlement agreement into upheaval. Your divorce lawyer must take care to craft a plan that not only addresses the present situation, but future eventualities as well.

Conclusion

If you are a professional athlete residing in New Jersey, then you will likely file for divorce or defend a divorce in New Jersey. Being proactive in obtaining an experienced local divorce firm is necessary to obtain the best results for you and your children.

 

 

 

How Does Inflation Impact a Divorce?

Something that interests me as a divorce lawyer is how “black swan” events may impact the most carefully drafted divorce agreements. We seem to live in an era of such events, with pandemics, recessions, and now inflation.

Recall the image of people carrying around wheelbarrows of money during the Weimar Republic as inflation made even basic household goods worth thousands of valueless dollars? Hyperinflation, a true “black swan” event, even if its cause now seems predetermined by historians. Just imagine how the German divorce lawyer of 1923 felt when their carefully drafted divorce agreement became absurd as money became all but valueless.

How Does Inflation Impact Alimony?

When you negotiate a divorce, there are four primary ways to address alimony

  • Mutual waiver of alimony – This is self-explanatory, neither party will receive alimony.
  • Lump sum buyout – You determine the amount for a buy-out sum. This is often a one-time buy-out where a larger percentage of some other asset is given to pay for alimony. Care must be made here to make sure the buy-out is tax-effected.
  • Regular monthly payments that can be modified if there is a change in circumstances.
  •  Regular monthly payments that cannot be modified even if there is a change in circumstances. (Cases such as Lepis v. Lepis) provide that alimony can be modified if there is a “permanent and substantial” change in circumstances, but courts have held that the parties can waive this right to revisit alimony if they include “Anti-Lepis” language in their divorce agreements.

Now imagine what the impact of hyperinflation would be in a situation where there was a lump-sum alimony buyout. $100,000 today might have seemed like enough support to last several years while the alimony recipient gets their feet back on the ground. Now, perhaps $100,000 is only enough to purchase a jar of pickles. And that well-thought out plan to include “Anti-Lepis” language now has one serious winner, and one serious loser.

Of course, the above is a somewhat ridiculous example. There’s a reason why the Weimar Republic is still our go-to example of hyperinflation. Because it’s something that does not occur all that often. (It’s why we still discuss Tulipmania as well).

No respected economist is yet claiming we are in a period of “hyperinflation,” but the fact remains that we are in a period of inflation. Steady inflation, meaning that quarter over quarter the cost of basic goods such as food, fuel, housing, and transportation are increasing.

The current 6.2% twelve-month inflation percentage will have an impact on people’s lives, and thus it will have an impact on people’s divorces.

There are often good reasons to include modifiable alimony and good reasons not to do so. Every case must be treated based upon the data currently available. But unexpected events, such as inflation, can turn any deal sideways. And what is troubling is that there is little that can be done to combat such issues.

One tool that can be utilized is including a cost of living increase (“COLA”) when negotiating alimony. This ties alimony to the rate of inflation, often regional depending on which part of the state the divorce is filed.

But what about deflation? Should alimony decrease by a set percentage if deflation (which is generally rarer than inflation occurs)? Again, interesting topics to consider with no clear answer.

These issues may also impact child support.

How Does Inflation Impact Child Support?

Unlike alimony, which is based on a number of factors, child support is based upon guidelines—essentially an algorithm ordered by the State. That means that child support is generally revisited every three years or so (especially if run through Probation/Family Support Services) to determine how inflation or deflation may impact the child support number.

Accordingly, child support is more immune to issues of inflation.

Alimony and Equitable Distribution

Inflation should also be considered when determining timing events for equitable distribution. For instance, the “time value of money” principle becomes even more important in an era of inflation.

Conclusion

As you can see, inflation’s impact on alimony and other portions of a divorce agreement should not be underestimated.

Although inflation is not usually a primary factor in negotiating divorce, today’s high inflation environment is a good reminder to consider the “silent stealer of wealth” while negotiating your divorce.

 

Detangling Business and Personal Expenses in a Divorce

There are many reasons why divorce for W-2 earns are simpler than for business owners. Today I’m going to cover one of the more complex issues for business owners going through a divorce: determining income. More specifically, how can personal and business expenses be detangled.

When Business Income isn’t Really Income

The two primary accounting methodologies accrual accounting and cash accounting. The basic difference is that cash accounting focuses on recording expenses or income when actually received, whereas accrual accounting focuses on recording expenses or income as such events naturally occur.

For instance, in accrual accounting you would record an electric bill the moment it is received, but in cash accounting you would only record it when you actually pay the invoice.

For business owners, what often appears as income may in fact be something else altogether. Perhaps the $20,000 ‘income’ this year has simply been held and earmarked for new equipment next year.

If you’re going through a divorce, the other side may then argue that the $20,000 ‘income’ be used in calculating alimony.

So instead, you purchase the equipment this year. And now the other side is arguing that you’re attempting to deflate your income to reduce your alimony exposure.

Divorce as a small business owner can often feel like a lose-lose proposition. Damned if you do, and damned if you don’t. And it’s not like you don’t still have a business to run.

And of course the $20,000 figure I used is completely arbitrary. Maybe it’s $40,000, or $100,000. To you it’s a necessary business expense, but to the other side it’s setting off red flags, and calls of divorce planning.

So what can be done?

Using Expert Witnesses in Business Divorce Cases

One thing that can be done is the retaining of expert(s) to provide business valuation reports. Perhaps they can speak to subjects such as expected expenditure in various categories, and what type of infrastructure, hiring, or upgrades is necessary for a business.

A written business plan can also be helpful in this scenario. Demonstrating that you have a plan, and that these decisions are not made in an arbitrary manner can go a long way in demonstrating good faith.

Another issue is separating personal expenses from business expenses. This is something both the Internal Revenue Service and your ex may have their eye on.

Separating Personal from Business Expenses

The car you lease, the restaurants you frequent, the vacations you take. The other side will be looking at these expenditures to analyze whether they are appropriate, or if you are attempting to reduce your business income. Remember, the other side is already skeptical, they know that many people attempt to reduce their income to pay less in taxes.

Now, with a divorce pending (or on the horizon), they believe you have every motivation to further reduce your income. Doing so can help in multiple ways: it can help reduce alimony and child support, and may also reduce the valuation of your business.

Here, as with many parts of your divorce, is where keeping solid records will be helpful. If you can demonstrate that your leased car is actually a legitimate business expense, for instance, then that can help you reduce your alimony exposure.

Consistency of expenses may be helpful here as well. There may be an “appearance of impropriety” if there is a sudden increase in expenses leading up to a divorce with no legitimate reason for the increase.

Other times, you may be able to demonstrate that increased expenses are necessary to take advantage of limited opportunities, or to increase the infrastructure of your business.

Some businesses legitimately maintain multiple sets of books, and you may need to address this with your attorney to make sure your legitimate business practices do not come across as shady.

If a court believes that a business expense is really better classified as a personal expense, then they may add that back into your income. Family court judges have a great deal of latitude in this regard.

Conclusion

Divorce cases are always fact-sensitive, and even more so when a divorce involves a business owner. Whether you are a single member LLC, an S-Corp, or a simple independent contractor, your business records may be discoverable as part of a divorce litigation.

Finding the right attorney to work through the law and the facts specific to your case (and business) can make all the difference.