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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As the mobility of our population increases while the divorce rate creeps ever-higher, cases involving more than one country or more than one set of laws are becoming common.

Over the years our law firm has represented clients with connections to other countries. International divorces can become complicated, especially when there are minor children.

One such complication is the Hague Abduction Convention, a multi-lateral treaty in which the signatories agree not to allow parents to migrate with their minor children to non-signatory countries. Many countries, however, have not signed the treaty such as Pakistan, India, Egypt and Nigeria to name a few.

Other countries, such as Brazil, although signatory countries, have been determined by the U.S. State Department to be non-compliant, making the return of children very difficult in some cases.

When an international couple divorces, heartbreak can result. One parent typically returns to the country of his nationality or citizenship, sometimes with the children. When the couple divorces, the other parent, depending on the laws of the country, may not be allowed to stay in the country. The expatriated spouse may then be forced to leave the country without her children and with no viable manner of returning for the children.

In one case handled by our law firm, the Mother took a minor child with her on a "vacation" to her homeland, Egypt, a non-signatory country. When the vacation turned into 9-months, Father sent one of his adult sons to collect the boy.

The Mother moved to Egypt and the couple ultimately divorced. The family court judge ruled that Mother could not have custody of the couple's remaining minor child due to her residence in a non-signatory country. She has appealed the judge and we are awaiting the results from the Michigan Court of Appeals.

Another complication is that some wealthy families conduct forum shopping when an international couple calls it quits in a divorce. In such cases, the applicable law acquires critical importance in the determination of the property division.

Some countries have laws that recognize pre-marital assets and pre-nuptial agreements while others do not. The situation is similar to the laws of each of our 50-states. Texas, for example, has very restrictive alimony laws.

If you or a family member are involved in an international divorce, schedule a free consultation with our law firm to thoroughly discuss your options.

Post #581

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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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In an unpublished decision released toward the end of last week, the Michigan Court of Appeals found fault with the Wayne County Family Court in a divorce case that touched on the application of Shariah law.

Specifically, the Hammoud case involved the imposition of spousal support in a realaitively short-term marriage. The Court of Appeals was troubled that the family court conditioned the duration of the "open ended" support on wife obtaining an "Islamic divorce" decree, noting:

As structured by the trial court, plaintiff has no incentive to become self-sufficient or to vigorously pursue an Islamic divorce as she is assured an ongoing income ad infinitum.  The trial court also failed to address or seek further clarification of plaintiff’s contention that she was in possession of a document that would permit others to assist or assure her the attainment of an Islamic divorce without defendant’s consent.  Plaintiff indicated that an agreement existed that would permit her brother and brother-in-law to authorize the Islamic divorce, potentially rendering it within plaintiff’s control to prolong her receipt of spousal support.

The implication, as held by the Court of Appeals, was that the family court pressured the husband into agreeing to an Islamic divorce when, under the establishment clause, it had no power to do so.

The Court of Appeals was not impressed with the lower court, the litigants, or their attorneys.  The case also featured an [untranslated] Arabic language prenuptial agreement proffered by husband to support his position that his wife agreed to forgo any spousal support.

The Hammoud case received national attention with a reference in Law Professor Eugene Volokh's law blog; the Volokh Conspiracy.

We here at the Law Blogger agree that family court is not the place for the implication or enforcement of religious laws; that is for the house of worship and is a private matter between the litigants.

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