The recently-proposed GOP tax plan eliminates an above-the-line deduction for alimony payors. This proposal would reverse 75-year-old legislation that protects spousal support payors, and divorcing families in general, with a significant tax break.

Characterizing the existing deduction as a "divorce subsidy", the House Ways and Means Committee proposal, at section 1309, states:

Alimony payments would not be deductible by the payor or includible in the income of the payee. The provision would be effective for any divorce decree or separation agreement executed after 2017 and to any modification after 2017 of any such instrument executed before such date if expressly provided for by such modification.

One of the Committee's stated considerations in proposing the elimination of the alimony tax deduction is that a divorcing couple receives better tax treatment than a married couple under the current tax code.

In their commentary on the House proposal, joint-committee legislative staffers had this to say about section 39:

Under the proposal, alimony and separate maintenance payments are not deductible by the payor spouse. The proposal repeals sections 61(a)(8) and 71 of the Code. These sections specify that alimony and separate maintenance payments are included in income. Thus, the intent of the proposal is to follow the rule of the Supreme Court’s holding in Gould v. Gould, in which the Court held that such payments are not income to the recipient. The treatment of child support is not changed.

Well, we here at the Law Blogger note that the SCOTUS case relied on by the legislative staffers was decided in 1917, and was subsequently wholly supplanted by IRC sections 61(a) and 71.

Today, the Senate releases its version of the tax proposal. Legislators in both chambers point-out that the specific tenets contained in the proposals, including section 39 of the House plan, are up for discussion.

To the extent that the provision would require the support payor to pay his obligation with after-tax dollars, it hurts divorcing families just as they are at their most financially vulnerable. A spousal support recipient will always have a lower marginal tax-rate then the support payor.

Although the support recipient currently pays taxes on the "income" received in the form of alimony, that payee pays significantly less in taxes due to the lower marginal rate. By closing this gap, the GAO estimates the United States would re-capture approximately $8.3 billion in additional tax revenue over the next decade; truly, the proverbial "drop-in-the-bucket".

This government savings would come at great cost and confusion to divorcees, say many divorce and tax professionals. The loss to the payor under the proposal would be much greater than the paltry gain to the payee. Some critics of the GOP's plan say this amounts to a morality-tax imposed on divorcees.

As a policy matter, elimination of the alimony deduction cuts against the progression and liberalization of divorce laws since the 1950s, seriously complicates spousal support negotiations, and would, in most cases, hurt both the support recipient and the payor. If the alimony deduction is eliminated, spousal support negotiations would become an exercise in "sharing-the-pain".

We will do what we do here at this blog; monitor the legal developments and report-back to our readers.

Post #610
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Long-term marriage has been an endangered species for some time in our society.  Couples in the United States divorce at the rate of approximately one million times each year.

Divorce is Hell for both men and women.  Even in our post-modern society, however, women still seem to get the brunt of the pain.

According to a recent study published by the University of Michigan, approximately 115,000 women nationwide lose their health insurance coverage as a direct result of the divorce process.  Of these, some 65,000 never re-gain coverage.

The study was conducted by Bridget Lavelle, a UM sociology doctoral candidate.  Ms. Lavelle examined literature and data from survey respondents who divorced between the years 1996 and 2007.  The December issue of the Journal of Health and Social Behavior will feature the study.

Lavelle postulates that women's loss of health insurance benefits is not just a temporary disruption resulting from the divorce process.  Rather, she concludes that the loss of health insurance coverage for women is a long-term problem that compounds the economic losses of divorced women.

What's worse is that mid-income women have the greatest risk of loss of coverage because they do not qualify for Medicaid or other safety-net coverage options available to lower income divorcees.

We here at the Law Blogger wonder what effect Obamacare and the Affordable Care Act will have on this equation next year when everyone must carry insurance by mandate of federal law.

When facing a divorce, if you are at risk of losing your health insurance coverage, consider demanding some form of short-term alimony payments sufficient to cover the 3-year period of COBRA available from your spouse's employer.  Or, in the alternative, shop for comparable affordable health insurance.

The short-term alimony approach will at least cover women during the initial transition from marriage when, as posited by Ms. Lavelle, they are most at risk to lose health insurance coverage, and suffer even greater economic hardships as a result.

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The original "double-dip".

Many of us, when we think of “double-dipping,” immediately envision George Costanza nonchalantly eating chips and dip at a boring party. He bites the chip, dips, bites again, dips again, oblivious and happy.

Meanwhile, a fellow party-goer and disgusted onlooker cannot contain the impulse to put a stop to this obvious dip-contaminating behavior and confronts George. Inane hilarity ensues; check it out here.  [Note: Post-Seinfeld generation and long-time Seinfeld enthusiasts – you’re welcome.]

Double-dipping, in the world of family law, typically refers to the way assets are valued in the division of a marital estate.  A recent Michigan Court of Appeals decision, Loutts v Loutts, addresses this issue of “double-dipping” in the spousal support context.

This divorce case originated in the Washtenaw County family court.  One of the main issues in the case was how to determine an appropriate spousal support award where the marital assets included a business valued at more than a quarter million dollars.

The husband started, owned, and operated the business. When the family court awarded half of the business value to his wife, the question became: what income should be imputed to husband now that half the value of the business had been conveyed to wife?

When determining spousal support, the parties’ incomes must be determined so that the family court may decide how to equitably balance the incomes. The Michigan Court of Appeals has articulated a balancing test such that:

the primary purpose of spousal support is to balance the parties’ incomes and needs such that neither party will be impoverished, and spousal support must be based on what is just and reasonable considering the circumstances.

The family court can only perform this balance test on a case-by-case basis – typically unwilling to follow any bright-line rules for determining the rate and term of a spousal support award.

The family court in Loutts, after awarding wife half the value of the business, imputed approximately $130,000 income to husband.  This imputed income was utilized to “equitably balance” the incomes of the parties.

In doing so, the family court judge relied on case law to determine that “the value of a business may be used for the purpose of either property distribution or spousal support, but not both.” On appeal, wife argued that the court should have used the full-value of the business in determining her spousal support award.

The Court of Appeals disagreed, remanding this issue back to the family court for a re-determination of spousal support based upon the specific facts and circumstances of the case.  In their opinion, the Court of Appeals stated that the trial court’s reliance upon the Heller v Heller case was misplaced to the extent that, “the appellate court stated that its determination that a double-dip was inequitable was based on the facts of that case alone and was not a determination that double-dipping is never permissible.”  [The emphasis is ours.]

The obvious "take-away" from this recent case is that, when it comes to determining spousal support, bright-line rules simply do not apply. Rather, the family court judge should consider a variety of factors, including: the conduct of the parties, their ability to work, their ages, needs, health, present situation, prior standard of living, ability to pay alimony, and general principles of equity.

Double-dipping might be ok – given specific factual and equitable circumstances.  Exactly what those circumstances are remains a fuzzy, mutable, arguable enigma, ripe for the art of legal persuasion.

The one constant is that each case before the family court is unique and should be considered so by the judge.

Also of note in the Loutts decision is that the Court of Appeals wasted no time in upholding a 3-year non-compete provision that applied to the business and to which wife agreed, but appealed.  The Court held that you get what you bargain for.

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Attorney Henry Baskin

Technically, the Michigan Rules of Professional Conduct do not expressly proscribe a lawyer from having sexual relations with a client.  The lack of a specific ethics provision, however, did not prevent the Michigan Attorney Grievance Commission from issuing a reprimand and assessing costs against well-known Birmingham attorney, Henry Baskin, for allegedly conducting a long-term physical relationship with a female divorce client.

We here at the Law Blogger know Henry, having worked with him on a few matters over the years.  So we are compelled to ask, Henry...Henry...of all the women you could persuade to, er, date you, why select a client; and a divorce client to boot?

The Attorney Discipline Board [a panel of lawyers assigned to decide Henry's case] had this to say in disposing of this matter:

Although there is no evidence of actual injury to the client, the potential injury under these circumstances is clear to any lawyer, and certainly to someone with [Baskin's] experience.

Never one to shirk the white-hot spotlight, Henry has publicly commented that he disagreed with the decision, and thought the matter should have been resolved privately long-ago; the relationship apparently was conducted from 1999 through 2004.  Henry also noted with some apparent pride, that his client was well-served in the divorce to the extent she received a record-breaking alimony award.

Perhaps this ruling will have some interesting future implications.  For example, what if the lawyer has a long-standing committed and pre-existing relationship with the client, say in a probate or commercial matter?  Obviously divorce clients are always going to be "taboo".  Or what if a lawyer represents his spouse?

The Attorney Grievance Commission always takes the unique facts and circumstances of a particular case into account.  We have to agree with this one.  Of all the people a divorce lawyer may elect to date, it just should not be from among the corps of that lawyers clientele.

So folks, beware of the horny divorce attorney!  Caveat emptor on that one for sure...

www.clarkstonlegal.com
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