Marion Circuit Court

Mom and Dad, joint custodians of one child, disagreed on who should be permitted to claim Child for tax purposes. Dad – who had a significantly higher income than Mom – motioned the Circuit Court to claim Child each year pursuant to 26 U.S.C. § 152. Mom requested that she be able to claim Child during the years she was unable to claim her older child (not Dad’s) as a dependent. The Circuit Court, relying on Adams-Smyrichinsky v. Smyrichinsky, 467 S.W.3d 767, 781 (Ky. 2015), held that it was required to allocate the tax credit such that the financial benefit to Child was maximized. The Circuit Court found that if Dad did not claim Child, his refund would be $4,073 less; if Mom did not claim Child, her refund would be $4,347 less. Thus, the Circuit Court held that because Mom and Dad were joint custodians exercising equal timesharing, and the consequence for not claiming Child was similar for each parent, it was proper for Dad to claim Child while Mom could still claim her older child and when the older child aged out, then Mom could claim Child. Dad appealed and the Appeals Court reversed the Circuit Court’s ruling.

After determining that 26 U.S.C. § 152(c)(4)(B)(ii) applied because Child was in the custody of each parent for half of the year, it followed the federal tax code’s direction that the parent with the highest adjusted gross income (AGI) shall claim Child, and ordered that Dad be able to claim Child until such a time that Mom’s AGI surpassed Dad’s. The Appeals Court noted that in any case, the noncustodial parent (the parent with the lower AGI) may claim a child if the custodial parent (the parent with the higher AGI) signs a written declaration that they will not claim the child as a dependent for that taxable year and the noncustodial parent attaches that declaration to their own return for that year. Ultimately, the Appeals Court instructed that it is the federal tax code which allocates the deduction – not Adams-Smyrichinsky, and thus, the federal rule allocating the benefit to the parent with the higher AGI governs. However, the Appeals Court noted that a circuit court may look beyond the federal tax code rule and order that the parent with the lower AGI claim the child only if there are extraordinary reasons outside of fairness or mathematical equity between the parties that compel a deviation from the normal IRS rules. In citing the reason for deviation, a ruling should also explain why awarding the exemption to the noncustodial parent benefits the child and thus affects the child’s support. In all other cases, a circuit court should presume that the IRS rules apply.

In this case, the Circuit Court did not discuss how the money saved by claiming Child in a particular parent’s household would actually benefit Child, and by failing to state a reasonable nexus in assigning the exemption to Mom, it abused its discretion.

Carter Anderson

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U.S. Court of Appeals for the Sixth Circuit

Family Court ordered Mother to pay monthly child support and 32% of childcare expenses to Father. Shortly thereafter, Father filed for contempt due to Mother’s refusal to pay certain child related expenses. Child then incurred certain medical related expenses, for which Father requested reimbursement. Mother filed for bankruptcy. Mother argued that her bankruptcy petition stayed the contempt proceedings against her, but the Family Court found that the stay did not apply because the hearing was related to her domestic support obligations. The Family Court entered a judgment setting Mother’s arrearage, increased Mother’s wage withholdings, and intercepted Mother’s tax refund. The Family Court also found Mother in contempt.

Father filed another contempt motion with the family court for Mother’s failure to pay the child related medical expense. In response,  Mother filed a Motion in Bankruptcy Court, arguing Father violated the automatic stay. The Bankruptcy court found that Father violated the automatic stay and awarded Mother $4,313.75 in attorney’s fees and $1,000 in punitive damages, on the basis that the Contempt finding violated the automatic stay. The Bankruptcy Court also found the wage garnishment order and the tax interception did not violate the stay. The Bankruptcy Appellate Panel found the medical expense was subject to the stay.

Mother appealed. The Court of Appeals held that, except for the contempt finding, the Family Court’s order did not violate the automatic stay because an exception applied. The Bankruptcy code’s automatic stay of other actions against the debtor does not apply to a civil action that is “for the establishment or modification of an order for domestic support obligations.” Domestic support obligations include debts established by a court that are “in the nature of” maintenance or support, “without regard to whether such debt is expressly so designated.” Because the Family Court established a domestic support obligation by entering a judgment for the arrearage, altered Mother’s wage withholding, and clarified the amount of outstanding expenses, the Family Court’s acts were tailored to the stay exceptions. The contempt portion of the Family Court’s hearing was a violation of the automatic stay, however, this was not contested. Finally, the Court of Appeals did not make a finding on whether Father’s request for reimbursement of medical expenses violated the automatic stay because it did not change the Court’s calculation of Mother’s actual damages.

Emily T. Cecconi

The post Bankruptcy Automatic Stay Does Not Apply to Civil Actions for the Establishment or Modification of Domestic Support Obligations, Including Establishment or Modification Which Collects Outstanding Child Support Obligations-Published Opinion from United States Court of Appeals for the Sixth Circuit appeared first on Goldberg Simpson - Family Law Group.

General Information:

Learn How To Work A Child Support Worksheet In 3 Easy Steps

Step #1: How Many Children Do You Have?

The first step in calculating child support in Kentucky involves looking at the number of children involved.

The Kentucky Child Support Guidelines table requires you to first state the number of children that you share with the parent for which you are trying to calculate a support obligation. Here is a snapshot of the first part of the law that establishes the child support numbers in Louisville and throughout the state:

(You can access the complete child support guidelines table by clicking here.)

The columns at the top of the table range from “one child” all the way up to “six or more” children. As a very basic example to illustrate how the child support number goes up with the number of children, if both parents together make $500 per month in gross income, the overall support obligation for one child would be $100 per month, but $120 per month would be used if there are five children shared by those parents.

If you have a child younger than the child(ren) for which you are calculating a child support number, that younger child will not be included in the calculation. If either you or the other parent have a child support obligation for a prior-born child, then you will need to know that number to fill out a Kentucky child support worksheet.

Step #2: How Much Money Do The Parents Make?

As you can see from the chart above, the child support formula looks at the combined monthly gross income of the parents along with the number of children to arrive at an overall support obligation.

Gross income is how much you make before taxes. It’s the larger number on your paycheck, before any other deductions such as retirement and health insurance.

Family courts will generally look at your three most recent paystubs to determine your year-to-date income, along with last year’s tax information, to arrive at your gross monthly income.

Step #3: Who Is Paying For Extra Expenses Such As Child Care And Health Insurance?

In most families, either the mom or dad will be paying for work-related child care or medical insurance for the child(ren) out of their paycheck or their own pocket.

The exact cost of those expenses should be obtained from your employer (ask for the cost difference between an employee-only plan and a plan which includes employee plus children) or child care provider.

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Questions Presented: Marital Dissolution. Restricted Stock Units. Trial court improperly classified restricted stock units (RSUs) as entirely nonmarital property. To appropriately classify such assets the trial court applies a presumption that the RSUs are earned over the period between grant and vesting, and the proportion of RSUs acquired for purposes of marital classification is the proportion of time between grant and decree of separation that is marital. This presumption may be rebutted by the parties. Because trial court did not include RSU income in the income calculation for child support, the child support calculation is also reversed. However, trial court’s determination of the wife’s reasonable needs and the amount of ordered maintenance was not an abuse of discretion.

Oldham Circuit Court

In a dissolution of marriage action, Husband, employed by Humana, earned incentive-based income, including restricted stock units (RSUs), which were usually granted annually and vested to the employee after three years. Prior to vesting, the RSUs were subject to restrictions, unavailable to the employee, and non-transferable until such restrictions lapsed and vesting occurred. The primary restriction was continued employment.

The parties also contested classification as marital or nonmarital an interest in Husband’s 401(k) and a plot of land in Wyoming. The 401(k) consisted of contributions from employment both prior to and during the marriage. Husband testified that he transferred his premarital retirement funds into his Humana account and claimed that $77,000 was the nonmarital value of the account. Wife argued that Husband did not sufficiently prove the nonmarital interest. The plot of land was purchased prior to the marriage with Wife paying the initial down payment of $5,000. Husband testified that he reimbursed Wife for the down payment. They both argued that a portion of the land should be their nonmarital property.

Family Court found all proceeds from the unvested RSUs to be Husband’s nonmarital property, and it did not include them in calculating his income for maintenance or child support. It accepted the $77,000 nonmartial value for the 401(k) account, and it found that neither party presented sufficient evidence to a nonmarital claim to the plot of land. Family Court awarded Wife $1,500 per month in maintenance for 48 months, after finding that Wife’s reasonable needs were $6,000 per month and considering her nonmarital property, the martial property awarded to her, and her ability to become employed. Regarding child support, Family Court found that the parties’ monthly adjusted income was above the statutory guidelines and refused to adjust upward.

Wife appealed, disputing the classification of the RSUs, the retirement account, and the plot of land, the calculation of maintenance and child support, and the denial of attorney’s fees. The Court of Appeals of Kentucky affirmed Family Court in full. Wife sought discretionary review of the classification of the RSUs, the 401(k), and the plot of land and the calculation of maintenance and child support.

The Supreme Court found that RSUs are a form of equity-based compensation under which the issuer company promises to deliver whole shares of stock of the company in the future to an employee at no cost to the employee, if pre-specified vesting ad distribution conditions are satisfied. It held that, as a default rule, RSUs are earned over the period between grant and vesting. The proportion of the RSUs acquired for classification is the proportion of time between grant and decree of separation that is marital. This presumption may be overcome by offering contrary evidence, which may include appropriate plan documents, such as SEC filings, plan prospectus, or grant documents. RSUs are analogous to contingency fee contracts, which may represent both marital and nonmarital property, and the trial court must determine whether and to what extent they were granted as compensation for service prior to the grant versus as an incentive for the employee’s future services. The critical issue is the extent to which the anticipated benefits will have been generated by the mutual effort of the parties.

In this matter, the RSUs were awarded in February of a given year, vesting three years later. They were reported as ordinary income on Husband’s W-2 in the vesting year and taxed in the same year. Husband testified that the grants were a means of hiring and retention. Thus, the Court found no reason to disturb the general rule that the RSUs were a form of deferred compensation.

The Supreme Court held that Family Court incorrectly calculated the parties’ combined monthly adjusted gross income. Gross income includes, inter alia, wages, bonuses, and capital gains. Family Court considered only Husband’s base salary when calculating his income and did not consider the RSUs as part of his income. The Court must consider all income proven by substantial evidence. The party seeking to use a different income bears the burden of proving a different income. Family Court should have considered the RSUs deferred marital income and added the income proportionally to each spouse’s gross monthly income.

The Supreme Court held that Family Court did not abuse its discretion in its maintenance award. Family Court found that Wife’s reasonable needs were $6,000 per month, that she was capable of earning $1,733 per month and had personal property valued at $700,000. The trial court is not required to delineate every factor in its decision. Family Court correctly considered Wife’s independent assets and correctly addressed Wife’s inability to return immediately to the job market. Family Court was not required to analyze Husband’s income when calculating the maintenance payment, only to consider his ability to provide for himself and make the payments ordered.

Digested by Nathan R. Hardymon

The post Restricted Stock Units Are Presumed to Be Earned Over the Period Between Grant and Vesting, and the Proportion of RSUs Acquired Is the Proportion of Time Between Grant and Decree of Separation that Is Marital – Published Opinion from Supreme Court of Ky. appeared first on Goldberg Simpson - Family Law Group.

Another reason for the difference in your and your co-worker’s child support obligation may be that courts have the discretion to deviate from the child support guidelines when the guidelines’ application would be unjust or inappropriate. KRS 403.211(3). Examples of reasons for a deviation include a child with extraordinary medical, dental, educational, or special needs; a parent’s own extraordinary needs; a child with independent financial resources; and an equally shared parenting time schedule. KRS 403.211(3); Plattner v. Plattner, 228 S.W.3d 577, 579 (Ky. App. 2007).

Although there are guidelines in place, calculating child support is fact intensive and deviations are made on a case-by-case basis. Thus, it is important to discuss your unique circumstances with an experienced family law attorney.

The post Why Does My Co-Worker with My Same Income Pay More/Less Child Support? appeared first on Goldberg Simpson - Family Law Group.

Daviess Family Court

Parties were granted joint custody of their three minor children, and Father was required to pay $158.17 per week in child support and to maintain the children on his health insurance plan. Several years later, Mother moved to hold Father in contempt for failure to pay child support. At a hearing, Father testified he had been overpaying, as two of the parties’ children had emancipated. He also testified that of the 30 payments he allegedly missed, he had records to prove 15 and believed the amount of the arrearage to be even smaller but had no more documentation, as some of the payments were from 2008. Father admitted to missing 11 payments, totaling approximately $1,739. He also testified that Mother told him not to worry about the 17 cents per week, which Mother denied. After the hearing, Father filed documentation for all but 15 payments and stated he could prove more if not for the unavailability of Mother’s banking records. The 15 payments, while being credited for four more, were consistent with Father’s testimony of only having an arrearage of $1,739. Furthermore, the documentation showed that nearly all his payments were less the 17 cents.

After Father removed the parties’ eldest daughter from his health insurance, Mother moved Family Court to compel Father to reinstate their daughter on his plan and to enjoin him from dropping their middle child from the plan. At a hearing, Mother testified that the children were full-time students, currently dependent upon her, and had been dependent on Danny until they emancipated.

Family Court entered an order that Father had an arrearage of $1,739 in child support and that Father was not obligated to provide health insurance for the eldest and middle children under KRS 403.211(7)(c)(3). Mother appealed.

The Court of Appeals held that Family Court’s child support arrearage determination was supported by substantial evidence. The trial court is the fact-finder and charged with judging the credibility of the witnesses. Family Court found Father’s testimony and records to be more credible than Mother’s, which was not clear error from the record. So supported by substantial evidence too was Family Court’s finding and conclusion that the parties had orally modified the child support order by 17 cents, where Family Court found “the agreement would be fair and equitable; there would be little detriment to the children if support was ultimately reduced by less than $10.00 a year.”

The Court of Appeals held that Family Court did not err in not ordering Father to cover his emancipated children on his health insurance. In order to make such an order, a family court must find that (1) the children are full-time students; (2) the children are enrolled in and attending an accredited educational institution; and (3) the children are primarily dependent upon the insured parent. The children must be dependent upon the insured parent as a continuing obligation, as opposed to only at the time of emancipation. Mother testified that the emancipated children are now dependent upon her as opposed to Father, and she was unable to satisfy the final element.

Digested by Nathan R. Hardymon

The post Emancipated Children Must Be Primarily Dependent upon Insured Parent as a Continuing Obligation for Insured Parent to Be Required to Provide Insurance – Published Opinion from Ky. Court of Appeals appeared first on Goldberg Simpson - Family Law Group.

Courts have the discretion to deviate from the child support guidelines when application would be unjust or inappropriate. KRS 403.211. In cases where parents share parenting time equally, have nearly equal incomes, and share expenditures for child-related expenses nearly equally, the child support guidelines have been held to be inappropriate and unjust under KRS 403.211(3)(g). Dudgeon v. Dudgeon, 318 S.W.3d 106, 107 (Ky. App. 2010).  

However, in cases where there is a disparity between both parents’ income, even if both parents have equal parenting time with the children, the higher income earning parent will usually have an obligation to pay child support to the lower income earning parent. This is because the guidelines were “based on the theory that a child should receive as child support the same proportion of parental income that he or she would have received had the parties lived together as an intact, two parent family.” 16 Louise E. Graham and James E. Keller, Kentucky Practice-Domestic Relations Law § 24:15 (3d ed. 2008).

In situations where there is a disparity in income, courts still have discretion to deviate from the guidelines to adjust the amount of the obligation. Although not required by statute, courts may use their discretion to apply a formula (referred to as the “Colorado Rule”), which accounts for the amount of time spent with each parent and the increased costs of maintaining two separate households for the children.

Although there are guidelines in place, calculating child support is fact intensive and deviations are made on a case-by-case basis. Thus, it is important to discuss your unique circumstances with an experienced family law attorney.

The post Do I Have to Pay Child Support if I Have my Children Half of the Time? appeared first on Goldberg Simpson - Family Law Group.

http://opinions.kycourts.net/coa/2019-CA-000805.pdf

Father appealed Family Court’s child support order requiring him to pay child support to Mother. The Kentucky Court of Appeals first admonished the bar for noncompliance with the Rules of Appellate Procedure, describing the pervasiveness of the problem, which is continuously on the rise. Because Father’s brief violated at least 11 rules, the Court of Appeals reviewed for manifest injustice only.

Father earned $6,666.67 per month, and Mother earned $1,819.86 per month, for which the Child Support Guidelines would yield a base support obligation of $1,410.00, which became $2,284.96 including childcare and health insurance premiums. Father’s share of the obligation was $1,362.26. Family Court deviated from the guidelines due to the equally shared parenting time arrangement, such that Father’s obligation was $859.57. The Court of Appeals held that reducing Father’s child support obligation does not constitute manifest injustice.

Digested by Nathan R. Hardymon

The post Admonishing the Bar for Failure to Follow Appellate Rules; Affirming Child Support Obligation Under Manifest Injustice Review – Published Opinion from Ky. Court of Appeals appeared first on Goldberg Simpson - Family Law Group.

http://opinions.kycourts.net/coa/2019-CA-001207.pdf

Mother moved Family Court to enter an order allowing her to enroll Child at a private school due to Child experiencing academic difficulties in her parochial school, to apply for financial aid, and asking that Father be required to assist in the financial aid application process. Father objected, citing concerns, such as the cost, the private school being strictly a special needs school, his belief that the public school would be more inclusive and offer more accommodations, and that he had not paid private school tuition at the parochial school. On the hearing on Mother’s motion, Family Court heard testimony from the parties, the friend of the court, and from a psychologist. Family Court made the following findings:

In this case, the parties’ child unquestionably has extraordinary educational needs that have shown limited, if any improvement after two years’ implementation of a Student Accommodation Plan and the assistance of private tutors. The child’s academic delays have become so pronounced that she is unable to return to her school for second grade. The child’s teachers, tutors, school, principal, school counselor, and pediatrician have all referred her to a specialized school. A comprehensive psychological evaluation yielded the same recommendation.

Family Court ordered that Child attend the private school and that the parties pay the cost of attendance in proportion to their incomes. Father filed a motion to alter, amend, or vacate, arguing that he never agreed to pay for the cost of the private school tuition and Family Court could not order him to do so without a finding that the public schools were inadequate to meet Child’s educational needs. Family Court denied this motion. Father appealed.

The Kentucky Court of Appeals held that Family Court did not make the necessary findings to properly order Father to pay private school tuition. Ordering a parent to pay private school tuition is a deviation the from child support guidelines, which deviation requires a showing of proper grounds under KRS 403.211(3). Two such grounds for deviation are (1) an agreement between the parties to deviate and (2) a child’s extraordinary educational needs. Family Court made no finding that the parties agreed to a deviation. Family Court did make a finding that Child had extraordinary educational needs but failed to address case law, Miller v. Miller, 459 S.W.2d 81 (Ky. 1970), requiring a showing that public schools are inadequate for a child’s educational needs to order a parent to pay private school tuition.

Digested by Nathan R. Hardymon

The post Family Court Improperly Deviated from Child Support Guidelines Ordering Father to Pay for Private School Tuition – Published Opinion from Ky. Court of Appeals appeared first on Goldberg Simpson - Family Law Group.

Those are just a couple of issues that we have helped divorced/divorcing parents (and unmarried couples with children) navigate during this time. The most recent issue concerns the stimulus payment that most people are now receiving from the federal government. What is the rule for which parent gets the $500 stimulus payment for children?

That question would imply there is a specific rule, which is not always the case in family court. Black and white answers do not always exist, and judges can view the same issue in different ways.

Note: it is important you consult with your CPA or tax advisor about this issue. Nothing you read in this post is tax advice. Here is a link to the online tool created by the IRS to check the status of your stimulus payment: https://www.irs.gov/coronavirus/economic-impact-payments

OPTIONS FOR DIVIDING THE STIMULUS PAYMENT

Take this example: a couple with one child was divorced in 2019, and the last tax return on file with the IRS for either parent was a joint 2018 return which included the bank account information for a joint account that the father kept after the divorce. Recently, father saw that $2900 was deposited into that account ($1200 for each adult and $500 for the child). Does dad get to keep the money?

Most judges will likely find that dad should immediately transfer $1,200 to mom for her portion as an adult. Regarding the $500 payment for their kid, several options exists:

• Equally divide the $500 (each parent receives $250) to assist with raising the child during the pandemic;
• Allow the parent who provides the primary residence for the child (sometimes called the “custodial parent” or “primary residential parent”) retain the entire $500;
• Divide the stimulus check for the child in proportion to the amount of parenting time each parent has (so, if mom has the child 75% of the time and dad has 25% of the time, mom would receive $375 and dad would receive $125) (this was the ruling of an Indiana judge recently in a telephonic hearing);
• Allocate the $500 based on analyzing each parent’s qualifying income – there are phase out limits where one may not qualify for any stimulus payment under the new law. If dad would qualify based on IRS rules but mom would not, allow dad to keep his and the child’s stimulus payments;
• Allow one parent to keep the entire amount to in full or in part count as a credit towards back child support or an arrearage on medical expenses;
• Award the stimulus payment to the parent who most recently qualified to claim the child for tax purposes (formerly known as claiming the child as a dependent and under current tax law known as claiming the child tax credit on the first page of the parent’s tax return) as outlined in the parties’ divorce or custody agreement or decree.

The CARES Act is the recent law that brought this issue to light. Courts may look to the actual language of the law (found at www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf) and its reference to “qualifying children” as defined by the Internal Revenue Code 152 in deciding where stimulus money for children was intended to land. Under a strict reading there, parties sharing 50/50 custody of the child may be ordered to split the payment, but a non-custodial parent who received the stimulus just because he or she was entitled to claim the child during the last tax season (or just because that parent’s bank information was on the last return on file with the IRS) would need to provide the money to the custodial parent.

We have seen some parents rushing to file their 2019 return in hopes that the IRS will use that updated information instead of what appeared on their 2018 tax return. Other parents may be holding off on filing their 2019 return if they made too much money to qualify for a stimulus payment based on their 2019 income. Many couples who have divorced in the past few years and/or couples who have a joint return on file with their ex-spouse may be affected by this.  Couples with a single/head of household return filed may also be affected due to the IRS not automatically sending $250 to each parent. The fact that the 2019 tax filing deadline has been extended to July 15, 2020 should also be considered in assessing how many of these disputes may play out in local divorce courts over the coming months in 2020.

Parties would be wise to consult with their tax advisor or accountant as it is expected parties will have to account for the amount received on their 2020 tax return. Does that provide courts with another factor to analyze – is the stimulus payment really an advance on the 2020 tax situation?

DIFFERENT RESULTS IN DIFFERENT FAMILY COURTS

It is likely that parents will see mixed results depending on the specific judge assigned to their case. Getting an answer is complicated by the fact that most courts are not operating as normally right now and a hearing may not be an option for months. Litigants must also take into account the attorney fees incurred in arguing over a $500 payment for a child. If other issues are pending, however, this topic could easily be raised.

If the parties did not provide bank account information on their last filed tax return and are in line for a paper check, that may allow the funds to more easily be escrowed for the parties to agree or the court to decide on who ultimately receives what. The paper check option may also be invoked if the bank account information listed on the parents’ last filed tax return is now outdated because that account was closed as part of their divorce settlement.

We are continuing to help clients in virtual mediations and settlement conferences while family courts are mostly closed. Feel free to contact our family law attorneys if you would like to discuss this or other issues that parents are encountering due to COVID-19.

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