If you have not traditionally handled your household’s finances, it might be hard for you to answer questions about your net worth, income, or financial status. Not to worry, this information can always be obtained during your divorce using formal or informal discovery. In Kentucky, parties to a divorce are required to complete a financial disclosure. If your spouse has all the financial information, their disclosure might be a starting point for discovery.  

If you have access to your most recent tax return, it is often a helpful place to start. If you and your spouse file a joint return, your return will include the income from you and your spouse, as well as information on income-producing assets. The IRS has resources that can assist you in understanding your tax return, or you can enlist the assistance of an accountant or family law attorney to get started. If you do not have access to your tax return, check with your accountant or financial advisor and ask for a copy of the records in their possession.

Ultimately, attorneys have tools they can use to get information. The right guide will help you to determine the best and most efficient way to obtain what is relevant to your case.  

Elizabeth M. Howell

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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.

The post Which Parent Gets The Coronavirus Stimulus Payment For Their Child? appeared first on Goldberg Simpson - Family Law Group.

If you are divorced or going through a divorce and have most recently filed a head of household, married filing separately, qualified widow or widower, or single return the economic impact payment will be deposited directly into the same banking account reflected on the return filed. You will want to ensure your address is correct. Please note that if you filed as married filing separately and your divorce is not final the payment will likely be considered marital property pursuant to KRS 403.190.

If you are divorced or going through a divorce and have most recently filed a married filing jointly return, the economic impact payment will be deposited directly into the same banking account reflected on the return filed. If that account has been closed, it will be sent to the address on the return. Again, you will want to ensure your address is correct. If your divorce is not final the payment will likely be considered marital property pursuant to KRS 403.190 and addressed, along with any impact on 2020 taxes, in any Marital Settlement Agreement or Final Order. If your divorce is pending, you and your former spouse may need to come to an agreement regarding the economic impact payment, considering its future tax impact, or pursue litigation.

It appears that the $500 for each qualifying child will be paid to the parent who most recently claimed the child under 26 U.S. Code § 24. As this may be the noncustodial parent, or a rotated benefit, we anticipate there will be conflict in determining which parent is entitled to the economic impact payment. Kentucky Courts have held that “the award of a tax exemption to a party who does not qualify for it under the Internal Revenue Code… requires the state trial court to meet the heavy burden of stating sound reasons that this award actually serves as a support issue benefitting the child. Adams-Smyrichinsky v. Smyrichinsky, 467 S.W.3d 767, 784 (Ky. 2015). We anticipate Kentucky Courts may consider the best interest of the child, however, as this is a 2020 tax credit, such an analysis could give one parent a windfall. Future treasury guidance may clarify these situations.

If you and your spouse or former spouse are unable to come to an agreement regarding the economic impact payment, you may want to consider consulting at attorney. While all civil dockets have been canceled for non-emergencies, creative solutions may be available. We at Diana L. Skaggs + Partners, PLLC are continuing to meet with clients and prospective clients via Zoom, FaceTime, or telephonically, and are always available for new client inquiries on our website.

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Family court dissolved the marriage of Husband and Wife with three children after a DRC recommendation and evidentiary hearing. Each party filed exceptions to the DRC report, the Court sustained one and overruled the rest. Wife raised several issues on appeal.

First, Wife argues that the DRC improperly adopted the findings and conclusions tendered by Husband. The Court of Appeals disagrees as the Supreme Court allows use of tendered findings and conclusions, as long as the Court does not abdicate “their responsibility to make required findings of fact and conclusions of law in this case.” In this case, a property evidentiary hearing was held, and the family court properly subjected the DRC findings to full review granting exceptions when necessary after review of the record.

Second, Wife next argues that the family court failed to “consider claims of domestic violence and neglect in granting of joint split physical custody of the Children.” The Court of Appeals again disagrees finding the family court properly considered all relevant evidence.

Next, Wife argues that the family court “erred by failing to order the parties to share the cost of child care in proportion to their respective incomes.” Again, the Court of Appeals disagrees holding that in cases that deviate from the Kentucky Child Support Guidelines “the trial court also has the discretion to deviate from a proportionate division of child care expenses.”

Fourth, Wife argues the family court erred in awarding the children-related tax exemption to Husband although Wife has more parenting time. The Court of Appeals agrees holding that the family court failed to “meet the [Adams-Smyrichinksy] ‘heavy burden’ to justify why the assignment of the exemption to [Husband] inures to the children’s benefit.”

Finally, Wife argues the family court abused its discretion in awarding Husband both marital vehicles. The Court of Appeals agrees holding that the family court’s findings do not specify how the award constitutes a “just division of the limited marital property in this case.” Although Wife’s parenting loaned her a car, and she may not use the marital vehicle while the children are young, the assignment of Husband was an abuse of discretion.

Digested by Elizabeth M. Howell

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Mother and Father had significant post-decree litigation regarding child support, tax exemptions, and uncovered medical expenses which ultimately resulted in a ruling that modified the allocation of dependent-child tax exemptions allowing Father to claim two children. Mother appealed arguing that the Family Court erred in modifying the tax exemptions without making specific findings.

The Court of Appeals affirmed the Family Court holding that Adams-Smyrichinsky controls absent an agreement between the parties. As in this case, there was a prior agreement by the parties, the Family Court looked at the totality of the circumstances and made an equitable and reasonable decision to allow Father to keep the tax exemptions for two children, and it was supported by sufficient findings.

Digested by Elizabeth M. Howell

The post Allocation of dependent-child tax exemptions supported by sufficient findings, published opinion from Ky Court of Appeals appeared first on Goldberg Simpson - Family Law Group.

When Ky is exercising UIFSA jurisdiction, it lacks authority to alter the duration of child support directed by another state.

As to modification of the dependent income tax exemption, Ky has authority to modify who is entitled to the exemption  if it is part of a support order and not a property right. The court must articulate a sound reason why awarding the exemption to a noncustodial parent benefits the child, otherwise it should not be done.The court can only order a custodial party to sign a waiver releasing the exemption if there is a sound reason reliably related to the support of the child.

The post Another Family Law Published Opinion from Ky Supreme Court Today: Modifying Duration of a Child Support Order Issued by Another State and Award of Income Tax Dependency Exemption appeared first on Goldberg Simpson - Family Law Group.

Smith v. Lurding

The appellant argued that the tax exemption for a child was non-modifiable because it was a bargained-for property right. The court looked to the language of the Agreement and held that the tax exemption was indeed modifiable because of the 4 corners doctrine. The agreement about the tax exemption was within the Agreement’s paragraph on child support. The Agreement itself expressly allowed modification for the child support provision. Additionally, the court indicated that allocation of a tax exemption for a child may be modifiable in any circumstance under KRS 403.180(6) which prevents parties from limiting or precluding the modification of issues concerning child support, visitation, and custody.

The post Published family law published opinion from Ky Court of Appeals today. Tax dependency exemption agreement is modifiable. appeared first on Goldberg Simpson - Family Law Group.

Dad appealed from TC’s order awarding child support (“CS”) to Mom, arguing that TC miscalculated CS owed; TC erroneously refused to abate CS during his summer parenting time; and TC should have included the earned income tax credit (EIC) and additional child tax credit received by Mom in its CS calculation.

BRAUSCH V. BRAUSCH
2007-CA-002198
PUBLISHED: AFFIRMING
PANEL: THOMPSON PRESIDING; VANMETER, HENRY CONCUR
COUNTY: KENTON
DATE RENDERED: 9/12/2008

Dad appealed from TC’s order awarding child support (“CS”) to Mom, arguing that TC miscalculated CS owed; TC erroneously refused to abate CS during his summer parenting time; and TC should have included the earned income tax credit (EIC) and additional child tax credit received by Mom in its CS calculation.

CLAIM OF MISCALCULATION OF CS:
In 2005, Mom and Dad entered agreed order modifying Dad’s CS obligation while he was attending nursing school. Pursuant to that agreement, CS was to be recalculated effective July 1, 2006 after his graduation. The hearing did not occur until July 2007, when Dad had been employed as a nurse for one year. TC considered James’ year-to-date income from June 30, 2006 through December 31, 2006 in its calculation. Dad contends that TC should have calculated his CS obligation on the income earned for the entire year of 2006, the first half of which he was still enrolled in nursing school and not earning as highly as in the later part of the year.
CA noted that CS statute creates a presumption that future income will be on a par with worker’s most recent experience Furthermore, CA held that including Dad’s income prior to the time of graduation would not correctly reflect his earning capacity for the purpose of calculating CS.

CLAIM OF CS ABATEMENT:
Because Mom must maintain the home and incur continued expenses for the benefit of the children even in the children’s brief absence from the home during Dad’s summer parenting time, CA found no abuse of discretion in TC’s refusal to abate Dad’s CS during that time.

CLAIM THAT EIC & ADDITIONAL TAX CREDIT ARE INCOME FOR CS
Although Mom received funds from Earned Income Credit and additional tax credit, these amounts were not included in her income in CS calculation. Mom claimed that these funds should not have been included, as CS statute provides that benefits received from means-tested public assistance programs are excluded from gross income for CS calculation purposes. CA found that EIC is a public assistance program, as its purpose is
to supplement the income of the neediest of families. It is also “means tested” as eligibility is directly dependent on the basis of income or resources. The additional child tax credit does not fall into the same category because the threshold income is $110,000, thus it does not provide assistance to needy families. Therefore, the additional child tax credit is not specifically excluded from gross income. CA found, however, that it was not income but a federal tax benefit included within the dependency exemption, as the benefit is contingent upon, and in addition to, the dependency exemption. CA noted that result could have inequitable consequences, but until such time as Legislature recognizes treatment of EIC in CS guidelines, such a result is mandated by statute.
Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates.

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