Tax changes will likely impact spousal support awards

By Andrew Zashin*

While most of the media focus on the new tax code changes has been elsewhere, if you are recently divorced or divorcing you may be interested to hear about the changes impacting spousal support.

Specifically, beginning this year income tax on spousal support dollars will be paid by the payor, or the person ordered to pay support to a former spouse.

In the past, spousal support – sometimes known more colloquially by the outdated term “alimony” – was considered taxable income to the recipient and tax deductible to the payor. In that way, income tax on the money was historically paid by the person in the lower income tax bracket. In contrast, income tax on money that goes toward child support has been the responsibility of the payor and was collected tax-free by the recipient.

Divorce lawyers have long taken advantage of the tax schema to help resolve their cases, since it gave the higher income earner some incentive to agree to a higher amount of spousal support than they might otherwise and leaves the recipient with a bit more after-tax cash for expenses.

It is true that spousal support awards – which were originally intended to provide for women who were predominately homemakers or who had lower-earning positions than their spouses – have decreased as societal norms change. Even so, IRS statistics indicate some 12 million tax returns claim deductions for spousal support payments each year and it remains an important component of many divorce negotiations.

In theory, removing the deduction should generate higher revenues for the government because the money would be taxed at the payor’s higher tax rate. In addition, this change ought to address the disparity in reporting; the number of recipients claiming spousal support income totals something closer to 10 million, creating an administrative nightmare for the IRS to reconcile underreporting and recover the missing revenue.

However, experts generally believe that spousal support awards, whether through settlement or ordered by a court, are going to get a lot less generous this calendar year.

Indeed, the last several months of 2018 saw parties rushing to finish up their matters in order to capitalize on the old laws. The Ohio spousal support statute specifically requires a court consider the tax implications when determining an appropriate award. Under the new tax code, a higher amount of any award will get allocated to taxes and the money simply won’t go as far. And payors are certainly reaching the conclusion that higher support amounts are less doable and palatable without the tax benefit.

So who will be affected by this change? Certainly anyone who obtains a divorce, including those who are in the process of divorcing, will be subject to the new laws. Deductible spousal support awards issued before 2019, on the other hand, will remain deductible. If an award is modified after the new law took effect, the language of any agreement will govern. That is, if the parties agreed that spousal support was to be deductible by the payor and taxable income to the recipient, that schema should stand.

Time will tell which spousal support levels become a bit more “normal.” But courts and practitioners are anticipating big changes.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:10-05:00January 15th, 2019|Spousal Support|

Proposed tax changes may impact alimony awards

By Andrew Zashin*

If you haven’t heard about the competing tax plans proposed by Congress, you haven’t been reading the news.

Just as soon as the House of Representatives released their proposed tax plan, the phones started ringing at the offices of domestic relations lawyers throughout the country.

Currently, alimony – which is more appropriately called “spousal support” in Ohio – is considered taxable income to the recipient, and tax-deductible to the payer. In that way, income tax on the money will generally be paid by the person in the lower income tax bracket. (In contrast, income tax on money that goes toward child support is the responsibility of the payer.) Divorce lawyers have long taken advantage of this tax schema to help resolve their cases, since it gives the higher income earner some incentive to agree to a higher amount of spousal support than he or she might otherwise.

It is true that spousal support awards – which originally were intended to provide for women who were predominately homemakers or who had lower-earning positions than their spouses – have been decreasing over time as societal norms change. Even so, IRS statistics indicate some 12 million tax returns claim deductions for spousal support payments each year, and it remains an important component of many divorce negotiations.

In theory, removing the deduction could generate higher revenues because the money would be taxed at the payer’s higher tax rate. In addition, this proposal looks to address the disparity in reporting; the number of recipients claiming spousal support income totals something closer to 10 million, creating an administrative nightmare for the IRS to reconcile underreporting and recover the missing revenue.

However, experts generally believe that spousal support awards, whether through settlement or ordered by a court, are likely to get a lot less generous if this law is enacted. The Ohio spousal support statute specifically requires a court consider the tax implications when determining an appropriate award. Under the proposed schema, a higher amount of any award will get allocated to taxes, and the money simply won’t go as far. How could awards not be impacted?

Doubtless, in settlement negotiations prospective payers will be making the same assessments. Certainly, a higher monthly support amount is more doable and palatable when the payer knows that some relief will come at tax time.

The current proposal seems to suggest that the change would take place for spousal support awards that start after 2017. It remains to be seen if this provision will see the light of day as actual law. In the meantime, practitioners are collectively holding their breath, anticipating an onslaught of requests to modify existing awards if this proposal sticks.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:12-05:00November 21st, 2017|Spousal Support, Tax Planning|

The Dress, the flowers, the chuppah and – the prenup?

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

Ah, wedding season! Love is in the air! You’ve found the perfect clothes. You’ve found the perfect venue. You’ve designed your chuppah, refined your guest list, and made your meal selections. Only one thing left: sign the prenuptial agreement. Or should you?

While often associated with high net worth individuals, the truth is that a prenuptial agreement can benefit those without millions in the bank, too. Prenups are frequently used to protect wealth that was acquired before a couple marries, as well as family money. These agreements can be used to ensure that children from a prior relationship will be provided for. They can require the giving – and acceptance – of a get (a Jewish divorce), and they can provide that the couple will have any divorce proceedings arbitrated by a beth din (a Rabbinical court) rather than litigated in civil court. Simply put, a prenuptial agreement is a contract that sets forth certain agreements regarding what will happen if the couple divorces, and sometimes also upon the death of one party.

While it sounds terribly unromantic, a prenuptial agreement can be a very important financial planning document for those of all walks of life. Some prenup signers were previously divorced and are entering their second, or later, marriage. Others are on their first marriage, but have accumulated wealth, or even debt, before saying “I do.” Some have children from other relationships and want to protect their children’s inheritance from a new spouse who might otherwise be able to take against their will.

Prenuptial agreements may also contain provisions regarding spousal support. Some may specify in great detail how much support a spouse will be entitled to upon a divorce, and some may specify there is to be no support at all. However, it is significant to note that, if even the remainder of a prenuptial agreement is determined by a court to be binding and enforceable, any spousal support award provided by such an agreement will be evaluated for reasonableness at the time of the divorce, and not at the time the agreement was signed. So if, for example, a party writes the next Harry Potter during the marriage, he or she may be expected to pay spousal support in spite of the existence of a prenuptial agreement providing that none would be exchanged at all.

Having said all of that, not everyone actually needs a prenuptial agreement. The definition of “separate property” is rather clear under Ohio law. In general, separate property is defined as an inheritance received by one spouse, a gift to only one spouse, or property that someone brought into a marriage. And in many, many cases, that separate property retains its “separateness” even without the benefit of a prenuptial agreement. That is, so long as the owner of the separate property can trace it (show where it came from, and show how it flowed from one account or form to another without being mingled with marital property), a divorcing party might expect to walk away with it anyway. So if your premarital property consists of a 401(k) plan or a savings account funded with your bar mitzvah money, it is probably safe.

They say that the best defense is a good offense. If you have any questions regarding how and whether you should protect yourself, it makes good sense to seek advice from an attorney well-versed in these issues so that you may determine whether or not you actually need a prenup to accomplish your goals and to make sure you are getting the protection you intend.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

What will happen to my income after divorce?

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

In helping divorcing clients, we very frequently encounter marriages in which one spouse has been the primary breadwinner. Sometimes the other spouse has stayed home to raise the children, or perhaps works only part-time. Sometimes both spouses work full-time, but one of them is in a much higher paying position. Whatever the reason, the question is the same: “What will happen to my income when I get divorced?”

Most people are slightly familiar with the idea of child support. In Ohio, we have a nice, tidy formula to calculate it. Practitioners, courts and the Child Support Enforcement Agency usually have software packages into which we put the annual income of mom, the annual income of dad, the number of children, and a few other bits of information regarding certain expenses, and a number comes out the other side. You can find calculators online as well. There are, of course, numerous exceptions, caveats and arguments to be made, and it does not work well when the family income is in excess of $150,000. But at least it gives us a starting point.

Spousal support, on the other hand, is a more confusing animal, with no neat formula to calculate it. Its purpose has morphed a bit over time. It has its roots in a time when women worked as homemakers, most often with little to no other marketable job skills, and men worked outside the home to provide financial support for the family.

Of course nowadays it is commonplace to see a wide variety of family configurations. We certainly still see stay-at-home moms, but we also see dual-income families, stay-at-home dads, and many wives who out-earn their husbands. Thus, while the basic principles of spousal support have remained the same, spousal support is now gender-neutral – yes, men may also be awarded spousal support – and intended for rehabilitation, not permanent maintenance.

In determining whether and how much spousal support is appropriate, Ohio courts are required to consider a number of factors, including the parties’ respective incomes and earning capacities, the duration of the marriage, the career prospects that one may have given up to care for children of the marriage, and the time and expense required for a financially dependent spouse to become more independent.

While the list of guidelines is pretty comprehensive, the law does not state how much weight to give each factor, nor does it give any instruction on how to apply each factor. Thus, the courts have wide discretion when fashioning an award. And we haven’t even touched on duration of support yet.

Similarly, there are no guidelines under the law regarding how many years the financially disadvantaged spouse should receive support. The rule of thumb in Cuyahoga County, as in many other counties in northeast Ohio, is one year of spousal support for every three years of marriage. However, it is important to note that this is only a generally accepted practice, not a rule of law. Here, again, the courts again have wide discretion to find that more or less support is equitable.

Unfortunately this discretion often results in widely disparate support awards that depend on more than just the specific facts of your case. They also depend on what courtroom the matter is in. For example, one judge might rule to “maintain the status quo.”

Another judge might rule that your spouse must pay only necessary “living” expenses, including the mortgage, taxes, insurance, and utilities. Yet another judge might find that payment of all living expenses plus an amount of extra cash is more appropriate. All the scenarios are equally likely. Yes, you read that correctly – the same set of facts, tried in front of three different hearing officers, following the exact same set of laws, can result in three very different support awards.

Ultimately, each case is going to be unique, and what happened in your friend’s case, your sister’s case, or your mother’s hairdresser’s case might have virtually no correlation to what happens in your own. Regardless of more systemic concerns, an experienced family law professional will be able to look at the specifics of your case and, in spite of the inherent unpredictability of support awards, give you a range of reasonable outcomes tailored to your specific situation.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:15-05:00June 19th, 2014|Child Support, Divorce, Spousal Support|

Women Bringing Home the Bacon May Be Ordered to Share It With Their Ex

Recently the Pew Research Center released a study that determined that in
40% of American households woman were the primary breadwinner (Associated
Press, 5/29/13.) Had the people at Pew asked an experienced family law
attorney, they would not have needed to conduct the study in the first place.
The study confirmed what those of us “in the know” already know;
working women are earning an increasingly larger share of their families’
income. The Pew study also confirmed something else that we knew: despite the
rise in relative income compared to men, attitudes have not changed nearly as
much as the increases in women’s income earning capacity. Yet, the impact of a
woman’s income earning power on divorce, child custody, and support issues is
often profound.

As far as attitudes are concerned, it seems to us that woman still
disproportionately expect to receive support, both spousal and child, more than
they should. That is true both in terms of the amount of support as well as its
duration. At the same time, women are astounded when they are asked to pay
support to their husbands and/or to the fathers of their children. With regard
to men, sometimes they refuse support when they should not. Reasons for this
vary, but such refusal is often borne of ego or social appearance. And when men
do demand support, many times it is used as a negotiating tactic more than an actual
financial expectation.

The reality is that generally speaking women want support too much and refuse
to pay it too often. Likewise, men refuse to accept support too much or cannot
stomach the thought of paying it to an ex-wife or mother they deem unworthy of
receiving it. As we have discussed elsewhere,
support payments of all kinds should be looked at as a means to create fair
results. Put another way, support payments are often just another tool in a
family law attorney’s “tool box.” Tax consequences and other
equitable factors could make support payments an important part of creating a
good settlement. There is not one “right” way to settle every case.

So what should you take away from this Pew study and the reality we describe?
As the Associated Press reported, despite the fact that “workplaces and
schools still follow a male-breadwinner model… the breadwinner-homemaker
marriage will never again be the norm….” In light of that reality
consumers of family law services need to be educated in order to get the
customized results that will best serve themselves and their children. Part of
that means curbing the desire to micromanage your case. Instead, your interests
are best served by finding a lawyer that you trust who understands how to
create good deals and get good results. And, it is important as an educated
consumer of family law services to recognize that sometimes the support you
demand could represent the most expensive dollars you ever get. Recognize,
also, that the flip side could also be true: the support dollars that you pay
could represent the cheapest dollars you will ever have to pay.

2023-11-10T13:38:16-05:00July 10th, 2013|Spousal Support|

A Formulaic Approach to Spousal Support

Often, the law resolves legal questions a certain way simply for the sake of resolution. Yet, people could make good faith arguments as to the fairness of the underlying issues. A perfect example of this is how Ohio courts divide marital property. The law presumes that property acquired during the marriage was accumulated due to the joint efforts of both parties. The result is that property is almost always divided 50% to the wife and 50% to the husband. This is true even in situations where only one side did all of the work to accumulate the assets, or where a 50/50 division seems “unfair” because one party walks away with half of everything plus his or her significant pre-marital assets. But this is how our law works, and the law does work.

People and litigants usually know as a matter of common sense how the courts will divide property. And lawyers know from the outset a general bandwidth of the eventual property division. Knowing how the law will operate reduces expensive fighting (after all, no one wants to pay attorney’s fees unnecessarily!) This knowledge and predictability reduces the time it will take and the money it will cost for people to get divorced. Imagine for a moment if the law did not work this way. In that case people would fight over who did what during the marriage, how much each party’s contribution was worth and the fairness of giving someone 50% (or more, or less) in a given case. This extreme and unworkable example is actually quite similar to the situation that exists now with regard to the determination of spousal support awards.

Imagine this scenario:

You are going through a divorce. You’ve hired the same attorney that helped your best friend’s cousin get a spousal support award of $15,000 per month for the rest of her life. With your attorney at your side, you confidently head in to court to have your own alimony award (whether temporary or permanent) determined. After all, your attorney will be able to get you a similarly generous award, right???

Not necessarily… The courts have wide discretion when awarding spousal support. And this discretion often results in widely disparate support awards that depend on more than just the specific facts of your case. They also depend on something neither you nor or attorney has any control over at all: they depend on what judge has been randomly assigned to decide your case. For example, one judge might rule to “maintain the status quo.” Another judge may rule that your spouse must pay only necessary “living” expenses, including the mortgage, taxes, insurance, and utilities. Still another judge might find that the payment of all living expenses plus an amount of extra cash is more appropriate. Each scenario may be just as likely as the next. That’s right – the same set of facts, tried in the same courthouse, in front of three different judges, following the exact same set of laws, can result in three wildly different support awards.
This disparity and unpredictability is exactly why a movement has started picking up steam. Across the country practitioners, their clients, commentators, court personnel, and legislators alike, are pushing for states to adopt a formula for determining alimony awards.

The New York Times recently published a related op-ed piece entitled “Ending the Alimony Guessing Game.” New York has become one of the few states to adopt a set formula, at least for determining temporary awards during litigation. According to the article and the IRS, former spouses pay around $9 billion in alimony each year. Is it any wonder many are pushing for more certainty in the process?

In Ohio the term “spousal support” has replaced “alimony,” and there are 14 factors in place that Ohio’s trial courts are supposed to consider when setting such support. Yet the amount of spousal support granted can be – and often is – all over the place. By Ohio statute, spousal support must account for all of the following:

a) The income of the parties, from all sources;
b) The relative earning abilities of the parties;
c) The ages and the physical, mental, and emotional conditions of the parties;
d) The retirement benefits of the parties;
e) The duration of the marriage;
f) The extent to which it would be inappropriate for a party, due to child care needs, to seek employment outside the home;
g) The standard of living of the parties established during the marriage;
h) The relative extent of education of the parties;
i) The relative assets and liabilities of the parties;
j) The contribution of each party to the education, training, or earning ability of the other party;
k) The time and expense necessary for the financially independent spouse to acquire education, training, or job experience needed to obtain appropriate employment;
l) The tax consequences, for each party, of an award of spousal support;
m) The lost income production capacity of either party that resulted from that party’s marital responsibilities; and
n) “Any other factor that the court expressly finds to be relevant and equitable.”

While this list of guidelines is pretty comprehensive, the law doesn’t state how much weight to give each of the factors, nor does it give any instruction on how to apply each factor. And, factor n) allows the consideration of anything at all! One almost wonders whether factors a) through m) are even necessary when the final factor almost makes a joke of them! For this specific reason, different judges may place different values on different factors, and reach awards that differ by several thousands of dollars per month.

As an example, say a husband makes an annual income of $500,000, while the wife, who is trained as a registered nurse, quit her job to raise their children and has not worked outside of the home in more than twenty years. In this case, it is pretty clear that the wife will be entitled to some level of spousal support. But how much is appropriate? She almost certainly will not be able to pick up her career right where she left off and may, in fact, be unable to find employment in the nursing field at all without substantial retraining. Many would argue that she could at least secure a job at the Ohio minimum wage of $15,392 annually, but even that may not be practicable in today’s economy and, regardless, the difference in the spouses’ incomes is quite substantial. So what is a fair split? Should the after-tax income be divided equally, giving her something like $200,000 per year plus child support? Should it be divided 60/40 or 70/30? Should it depend primarily on the minimum amount of money on which the wife could survive? There are no easy answers to these questions. And, just as each client has a differing opinion, each judge has a differing opinion as to the relative importance of each factor. This results in an analysis that, no matter how relentlessly the court strives toward impartiality, is very, very subjective and unpredictable.

And we haven’t even started talking about duration of the support yet… Similarly, there are no guidelines under the law as to how many years the financially disadvantaged spouse should be paid. The general rule of thumb in Ohio is one year of spousal support for every three years of marriage. However, it is important to note that this is only a generally accepted practice, not a rule of law. Thus, the courts again have wide discretion to find that far less or far more support is equitable.

The end result of this is an analysis that is unreliable, unpredictable, and unclear. Those qualities lead to more fighting, more courts, more time, more expense, and more grief for everyone involved in the process. Appellate district courts regularly hear the appeals of clients who are unhappy with the support awarded in their case. But so long as the court can show that it considered the required factors and had some reasonable basis for its decision, the $1,000 per month award is just as likely to stand up on appeal as the $15,000 per month award. One of the more recent cases, captioned Janosek v. Janosek (8th Dist.), 2009 Ohio 3882, was granted certiorari by the Supreme Court of Ohio, giving Ohio practitioners hope that a clearer formula would be established. Unfortunately the Supreme Court subsequently dismissed the appeal as having been improvidently accepted. Unless another case arises that can make it further in the appeal process, it will be necessary for the Ohio General Assembly to take the initiative.

It is vital to empower judges with the discretion to account for extraordinary circumstances when fashioning support awards, but the vast majority of cases would benefit from a formulaic approach. With better predictability, attorneys can better counsel their clients as to what they are likely to be awarded in spousal support were the case to be tried. And where the clients can be more reliably counseled, they will be more willing to settle, saving time, expense, and valuable court resources. After all, if someone has no idea if their award or obligation will be $1,000 per month or $15,000 per month, they may decide it is more financially economical to try the case than to settle on a figure they believe to be too low or too high. The benefits are very clear, and it is time for lawmakers in Ohio and other states to take notice and follow in the footsteps of Maryland, New York, Pennsylvania, and Colorado to add more clarity and predictability to the process of divorce.

2023-11-10T13:38:18-05:00August 15th, 2011|Spousal Support|
Go to Top