April 4, 2013 § 3 Comments

I’ve spoken here before about the mischief that can arise when one uses the ambiguous term “family support” instead of terms of art such as “child support,” “alimony,” and “property division” that are familiar to our courts. As I said in a previous post, the repercussions can be quite unexpected and unpleasant for your client.

In a decision handed down March 11, 2013, the US Tax Court in the case of DeLong v. Commissioner of Internal Revenue, ruled that the term “family support” creates an alimony obligation, and not a child support obligation.

You can read the decision for yourself, but it essentially turns on the point that since the obligation is not specifically denominated as child support the IRS will not consider it such.

This case arises out of a California divorce judgment. Note that the opinion states that the tax court will look to state law for how the state would treat the obligation. If this were a Mississippi case, the tax court would, to the best of my knowledge, find no helpful authority because the term “family support” is unknown under our law.

There are some serious side-effects from a case such as this. Child support is not deductible by the payer, and it is not income to the payee. Alimony is, however, deductible by the payer, and it most definitely is income to the payee. So, in this case, Mr. Delong got to deduct the payments under the divorce judgment, and the former Mrs. D. gets a bill for income taxes on the payments. If you had negotiated the settlement for Mrs. Delong and that is what she expected as an outcome, then you’re in good shape. If, on the other hand, she was not expecting a tax bill, you’d better look out.

And if the judge, in a comatose moment, injects that kind of language into a judgment, protect your client by filing a timely MRCP 59 motion to get the judge to correct the ambiguity.

In Mississippi, payments are either alimony, or child support, or property division. Denominate them as such, allocating the specific amounts under each. Never use combined language like “Husband shall pay to wife the sum of $2,500 each month as alimony and child support.” And never use ambiguous, non-legal language like “family support” when there are perfectly suitable, meaningful terms like “child support,” “alimony” and “property division” that do the job quite well.

Thanks to Justin Cobb, Esq.


June 13, 2011 § 4 Comments

John and Marsha have decided that they are tired of living in their own, personal soap opera, and they have agreed to an irreconcilable differences divorce.  It looks pretty simple:

Marsha will get the former marital residence.  It’s paid for and Marsha intends to stay there.  The house sustained some damage in a wind storm a couple of years ago, and the parties got $10,000 for repairs from insurance, but they spent it on a Hawaiian vacation, with a few days in Vegas on the way out, in an unsuccessful attempt at refreshing their marriage.  Marsha says she can get the repairs done or not because they don’t affect its habitability.  The roof needs replacing, but it’s been patched and doesn’t leak.  She says she’ll fix it if and when it leaks or when she sells the house, but she does not have the $6,000 it will cost right now.

The parties own two adjoining commercial lots worth about $15,000 each.  Marsha has agreed to take the lot they purchased in John’s name in 1990 for $1,500 before Wal-Mart located down the street.  John will get the jointly-titled lot they purchased for $12,500 several years ago.  A car lot is expanding and has expressed an interest.  Marsha would like to settle the divorce as soon as possible so as to cash in.  Marsha owes $14,000 on her credit cards, and she’s behind in her payments, so she needs as much cash as she can get out of sale of the lot.

The parties will split the 1,000 shares of Wal-Mart stock that they accumulated through the years.  Marsha really doesn’t know much about stock, so John has generously agreed to divide the shares.

Marsha has enjoyed driving the 2008 Jaguar that John bought her several years ago in an attempt to make up after she caught him in a questionable situation with a waitress from the Waffle House.  The car is paid for, and Marsha loves it because she has never had a nice car before.  She will get it in the divorce.

John has agreed to pay Marsha $1,000 a month in rehabilitative alimony for 36 months.  Even with the alimony, it will be a tight squeeze financially for Marsha, so she doesn’t need any unpleasant financial surprises after the divorce is final.

Marsha is in a hurry.  She wants you to do up the papers and she will pick them up to go over with John tomorrow, so she can get them filed right away.

It’ll be a snap to prep the PSA, and you are tempted to just hand the notes over to your secretary so they can be done while you hit the golf course.

Before you jump on this, though, ask yourself whether Marsha will really be getting what she thinks she is bargaining for.  Consider:

  • The divorce will be a transaction effecting a change of ownership in the former marital residence, triggering a re-rating of the homeowner’s insurance.  Because the hurricane repairs have never been done and approved by the insurance company, Marsha’s homeowner’s insurance premium is likely to skyrocket.  Not only that, but there are other factors that can adversely affect Marsha’s insurance premium, including her credit rating, which is questionable due to the credit cards.  In order to get her homeowner’s insurance premium back with a reasonable range, she will have to spend that $6,000 on the roof and complete the other repairs.  How can she find out in advance whether she will have a problem? Marsha can get a free insurance C.L.U.E. (Comprehensive Loss Underwriting Exchange) report by writing CLUE, Inc. Consumer Disclosure Center, P. O. Box 105295, Atlanta, GA, 30348-5295, or by calling 1-866-312-8076.  An insurance agent can help her decipher the report.  And, as you probably know, she can get a free credit report once a year.
  • When the commercial lots are sold, Marsha will be paying capital gains taxes, currenty 15%, on $13,500.  John will be paying capital gains on just $2,500.  Marsha’s tax bite will be $2,025, leaving her $12,975.  John’s taxes will be a mere $375, allowing him to pocket $14,625, or $1,650 more than Marsha.
  • Also, has Marsha gotten a title opinion on the commercial lot titled in John’s name?  It would be a bitter pill indeed to discover when she goes to sell it that John borrowed money against it without her knowledge.
  • The stock has the same pitfall as the commercial lots.  Stock purchased for $25 a share years ago will carry a much heftier capital gains burden than will the shares purchased for $65 a few years ago.  Moreover, John can allocate himself the shares that have sustained losses in the recent downturn.  Yet the parties are treating all the shares the same, and, to make it worse, John will call the shots.
  • As for her ride, Marsha needs to look at it as a cash drain.  How much is she willing to let it drain her?  The insurance alone is more than $1,500 a year, and this year’s tag, which is now due, is $862.  Not only that, it uses exclusively premium gas, and has never gotten the 21 miles to the gallon that the dealer promised.  Yes, it is paid for, but would she do better selling it and taking the cash to buy something more economical?  Can she even afford this car?
  • Finally, the alimony  is taxable income to Marsha unless the parties agree that it will not be taxable.  John will not likely agree due to the fact that he will get to claim it as a deduction.  Is Marsha aware of this?  Can you negotiate an extra $300 or so a month for Marsha to use to pay her income taxes?

You can do the papers exactly as Marsha dictated, or you can sit her down and bring all these matters to her attention.  It’s the difference between acting as Marsha’s clerk-typist and acting as her lawyer.  You get to decide.


August 31, 2010 § 9 Comments

A practice tip about trial factors is here

The factors that the trial court must consider in making an award of lump sum alimony are:

  1. Substantial contribution to accumulation of the marital assets by quitting work or assisting in the business;
  2. A long marriage;
  3. Financial disparity;
  4. Other considerations, including payor’s assets and payor’s stability or instability.

Cheatham v. Cheatham, 537 So.2d 435, 438 (Miss. 1988).   NOTE:  these factors predated Armstrong (periodic alimony) by five years, and the Armstrong factors essentially overlap these.  It may be preferable to cover all of the Armstrong factors coupled with a specific request for lump sum alimony as well as periodic or rehabilitative.


August 5, 2010 § 23 Comments

A practice tip about trial factors is here.

The decision in Ferguson vs. Ferguson, 639 So.2d 921, 928-9 (Miss. 1994), sets out the factors that the trial court must address in making a determination of equitable distribution.  Those factors are:

  1. Substantial contribution to the accumulation of the property, based on direct or indirect economic contribution to the acquisition of the property, contribution to the stability and harmony of the marital and family relationships as measured by the quality, quantity of time spent on family duties and the duration of the marriage, and contribution to the education, training or other accomplishment bearing on the earning power of the spouse accumulating the assets.
  2. The degree to which each spouse has expended, withdrawn or otherwise disposed of marital assets and any prior distribution of such assets by agreement, decree or otherwise.
  3. The market value and the emotional value of the assets subject to distribution.
  4. The value of assets not ordinarily, absent equitable factors to the contrary, subject to distribution, such as property brought to the marriage by the parties, and property acquired by inheritance or inter vivos gift by or to an individual spouse.
  5. Tax and other economic consequences, and contractual or legal consequences to third parties, of the proposed distribution.
  6. The extent to which property division may, with equity to both parties, be utilized to eliminate periodic alimony and other potential sources of future friction between the parties.
  7. The needs of the parties for financial security with due regard to the combination of assets, income and earning capacity.
  8. Any other factor that in equity should be considered.

Some principles of equitable distribution to bear in mind:

  • Equitable distribution applies to marital assets, which are assets acquired through the work efforts of one or both parties during the marriage.  Included in the definition of marital assets is added value, as where an asset was the pre-marriage property of one party, but its value was increased during the marriage by contribution.  An example is a 401(k) plan with a value of $10,000 at the time of the marriage that increases through contributions during the marriage to $100,000.  The increased value attributed to contributions is a marital asset. 
  • Equitable distribution does not mean equal distribution.  The division must be equitable, considering all of the Ferguson factors.  Each asset need not be divided; the overall division must be fair. 
  • Equitable division of the marital estate involves four steps:  (1) The trial court classifies each asset as marital or non-marital; (2) The court determines the value of each asset based on the proof, which may require appraisals; (3) The marital assets are divided equitably based on the Ferguson factors; and (4) move on to the Armstrong factors to determine whether, after equitable distribution, alimony is appropriate.
  •  The parties’ separate, or non-marital, assets are not subject to equitable division, although they are to be taken into consideration in the distribution as well as in ajudicating the need for alimony.  The values of non-marital assets must be in the record as well as that of the marital assets. 
  • Equitable distribution may be used to eliminate the need for an alimony award.  As the court stated in Ferguson at 639 So.2d 921, 929 (Miss. 1994), “Alimony and equitable distribution are distinct concepts, but together they command the entire filed of financial settlement of divorce.  Therefore, where one expands, the other must recede.”   
  • The contribution of a homemaker to the marital estate is presumed equal to that of a wage-earner, but the presumption can be overcome with proof that the homemaker’s contribution was actually minimal.
  • A spouse may be granted a greater share based on greater need.
  • In making its allocation of assets, the court considers the asset value net of debt, and may also factor in the amount of debt assigned to a party in determining how to award assets.
  • The valuation date is in the judge’s discretion, but the judge can be influenced by your proof and argument.  Give careful consideration to the date you wish for the assets to be valued.  For example, due to fluctuations in the stock market, it may be in your client’s interest for the valuation date to be closer to the date of the divorce than to the date of separation.  Make your position and its rationale clear to the court.  Caveat: The appellate courts have made it clear that entry of a temporary judgment stops accumulation of marital assets, so that any increased value or newly acquired assets after the temporary are the separate property of the party to whom they are attributable.

Equitable distribution is a complex subject with many nuances that are far beyond the scope of this post.  I recommend that you obtain a copy of Professor Deborah Bell’s Family Law in Mississippi, which includes an exhaustive analysis of the subject at Chapter VI.

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