Monday, January 30, 2006

How much child support will I pay or receive?

In Pennsylvania, child support
is calculated based on the
Child Support Guidelines.

Generally, you must determine the net monthly income of both parents. The net incomes are used to determine the amount of child support.

Net income is calculated using very specific rules. Therefore, to properly calculated a child support award, one must review at least one month of pay stubs and one to two years of tax returns, as well as all deductions from pay such as retirement accounts, health insurance and union dues. Some of these deductions are added back in to the net income amount for purposes of calculating support.

For most cases, ordinary expenses are not a consideration for the purposes of calculating support. However, like any rule, there are exceptions. Certain extraordinary expenses are considered, such as daycare, tuition and unusually high mortgage payments. This can change the guideline amount.

An accurate child support analysis requires a review of all of the income and expenses of the family. An experiences lawyer will utilize the guidelines, rules and exceptions to calculate the appropriate child support amount.

The following are examples of simple cases to illustrate typical amounts of child support:

(1) Mother has primary custody of the parties’ two minor children. Father earns $4,500 net per month. Mother earns $2,000 net per month. There are no day care expenses. Assuming no extraordinary facts that would cause a deviation from the guidelines, under the present child support guidelines, Father’s obligation would be $1,002 per month.

(2) Mother has primary custody of one minor child, an infant. Due to the tender years doctrine, Mother does not work and is not imputed an earning capacity. Father earns $6,000 net per month Father’s support obligation would be $1,016 per month.

(3) Father and Mother equally share primary custody of three children. Father earns $4,000 per month. Mother earns $7,000 net per month. There are no daycare expenses. Even though the parties share custody of the children equally, Mother will still owe a child support obligation to Father but she will be eligible for a reduction from the guideline amount due to her shared custody. Mother’s support obligation would be $921 per month.

(4) Mother has primary custody of two children. Mother incurs day care expenses of $800 per month. Father earns $3,500 net per month and Mother earns $2,500. Father’s child support obligation would be $792 per month plus $467 for daycare expenses. As you can see, daycare expenses significantly increase child support awards.

(5) Mother has primary custody of two minor children and does not work pursuant to the nurturing parent doctrine. She is not assigned an earning capacity. Father earns $17,000 net per month. Father’s child support would be $2,539 per month for two children.

The above examples include only extremely basic scenarios. The calculation of net income must take into account all of the net income, including bonuses, business income, commissions, rents, interest and fluctuating income.

An accurate child support calculation involves a detailed analysis of many factors. Even though we have child support guidelines, there are many exceptions and deviations. The above referenced examples can give you an idea of sample child support awards at varying income levels. However, to determine the child support for your specific situation, you should consult with an attorney.

Thursday, January 12, 2006

Quotes to ponder . . .

Notable thoughts, ruminations, comments . . .

Love, the quest; marriage, the conquest; divorce, the inquest.

ATTRIBUTION: Helen Rowland (1875–1950), U.S. journalist. "Syncopations," A Guide to Men (1922).


A lot of people have asked me how short I am. Since my last divorce, I think I’m about $100,000 short.

ATTRIBUTION: Mickey Rooney (b. 1920), U.S. actor, entertainer. Chicago Sun-Times (June 22, 1978).


Nowadays love is a matter of chance, matrimony a matter of money and divorce a matter of course.

ATTRIBUTION: Helen Rowland (1875–1950), U.S. journalist. Reflections of a Bachelor Girl, p. 99 (1903), eds. Paul and Stanley (1909). The epigram reappeared in Rowland, A Guide to Men, "Cymbals and Kettle-Drums" (1922).


Gimme the Plaza, the jet and $150 million, too.

ATTRIBUTION: Headline, New York Post (Feb. 13, 1990). Reporting Ivana Trump’s divorce settlement demands of husband Donald.

Taxes and Divorce

Taxes and divorce

Two incredibly unpleasant topics that, when combined, can be treacherous. Some tax pitfalls to look out for while navigating the maze of divorce:

Alimony

Are you receiving alimony? Generally, alimony is taxable to the recipient. Accordingly, you may be required to make estimated quarterly payments on the alimony you receive. Therefore, when budgeting, allow for your tax obligations. You may have to pay income taxes on that alimony you receive and that could put a serious dent in your cash flow.

Are you paying alimony? Generally, your payments could be deductible, resulting in a significant tax savings.

The Internal Revenue Code specifies the requirements that must be met in order for payments to be considered alimony. In other words, just because you call your payments alimony, does not mean the IRS will agree. Do not be surprised at tax time. Consult with a qualified accountant to make sure you understand the rules. Generally, the payments must be cash or check. (This means, if you pay the expenses for your spouse - ie pay the mortgage to the mortgage company - this would not be considered alimony). The document outlining your alimony obligation must be specific (See Internal Revenue Cod Section 71 (b)(1) and consult with a qualified accountant). You must live in separate households and file separate returns. The obligation must cease upon death.

Who claims the children?

Just because you are paying a large amount of child support does not mean you can claim your child as a dependent. In fact, generally, the custodial parent gets to claim the children. However, there are extremely specific rules. Additionally, a parent can release the right to claim the child as a dependent to the other parent using a specific IRS form .

Inasmuch as possible, cooperate with your spouse regarding who claims the children and have it included in the final agreement so everyone is clear. If you both claim the same children, you will end up tangling with the IRS and probably owing additionally interest and penalties.

What is your filing status?

If you live in Pennsylvania or New Jersey, generally, you are either married or divorce. If your divorce is still pending, you are considered married. To determine the appropriate filing status, first determine your marital status on the last day of the year (December 31). If your divorce was not final, then you are still married. Accordingly, you will have to decide whether to file jointly with your spouse (married filing jointly) or separately (married filing separately). In many cases, filing jointly results in the lowest tax burden but may be complicated if one or both of the parties owe taxes, there is a question as to one party’s income, one party under or overpaid their taxes throughout the year or one party does not have adequate information regarding the other party’s financial situation. If you sign a joint tax return with someone, you are vouching for whatever is on that return. Sometimes, to avoid liability, it may be prudent to file separately.

Filing separately usually results in a higher overall tax burden. Additionally, both parties must itemize deductions or both parties must take the standard deduction. This could result in an uneven tax burden. Consult with your accountant regarding the different filing options and discuss the matter with your attorney. Begin the discussion well before April 15 so any material issues can be ironed out before the filing deadline.

Sale of a Residence

Generally, a taxpayer can exclude up to $250,000 of gain on a residence from taxes. Married taxpayers, filing jointly can exclude up to $500,000 of gain. If the parties have lived in the residence long enough for it to have increased substantially in value, it may be prudent for the parties to sell it when they are still married and filing a joint tax return. If one party obtains the residence in the divorce and then sells it and incurs substantial gai, the tax bite could severely reduce the expected benefit. Consult with an account regarding this matter before deciding what to do with the marital residence.

Dependent Care Credit/Child Care Credit

If you incur work-related child care expenses, you may be eligible for a credit. Likewise, there is a tax credit available for a qualifying child under age 17. Consult with your accountant to determine your eligibility.

Do not make divorce more financially painful by being ill-prepared for the tax effects. As you negotiate the financial aspects of a divorce, consult with a qualified accountant as to the tax consequences along the way, so you can make informed decisions. This article is not meant to replace specific legal advice from your attorney and accountant.