Month: February 2020

It's not safe to assume that divorcing couples filing their income taxes one way over the other is better.

In late March/early April, if you're filing taxes during a divorce, you'll have to make an important decision about filing your income taxes. Read some tips to answer your questions from family law attorney and divorce lawyer, Mary Cushing Doherty.

Don't listen to your accountant.

In Pennsylvania, divorcing couples filing taxes sometimes state their status as “single” because their accountant said they can file separately. However, that’s not an option. The parties may either file “jointly” or “married filing separately.” In some states, there is a decree of separation, and the IRS will allow those legally separated to file separately. Pennsylvania law does not provide for legal separation.

But ask for their professional opinion.

One cannot assume that there will be benefits to filing jointly rather than filing separately. The best way to determine this is to have an accountant familiar with both husband’s and wife’s income to run analysis as to the tax liability when filing jointly compared to separately.

Coordinate the answers to big questions.

Parties who have filed jointly in the past, but want to file separately pending the divorce, will have to allocate or divide shared deductions, joint interest, and joint dividends. The biggest deduction is likely the mortgage interest deduction. Was that paid from a joint account? Who signed the checks? Does one spouse assume the right to take the deduction alone, thereby skewing the tax liability of the other? These questions must be addressed with one’s attorney and accountant.

July 1st is an important date for filing taxes during a divorce.

The custodial parent of minor children may qualify as Head of Household. The key consideration is whether the parties were separated before July 1. Click here for an idea as to why the Date of Separation in a divorce is so important. In other words, the Head of Household must have been separated and primary custodian of the child for over 6 months of the tax year. The parties must properly take the dependency deduction for minor children. The other parent – the one who cannot claim as Head of Household - will be filing in the highest tax bracket: married filing separately.

Can the parties file one way and amend to an alternate status at some time in the future?

Yes, but that option only goes one way. You can file separately and thereafter amend to file jointly within three years of the original tax filing due date.

Indemnify.

Couples may agree to file jointly to save taxes, but in doing so, they should also consider having an Indemnification Agreement. Such Agreement will be a private contract between Husband and Wife in the event there is a problem with the joint return, (i.e. error with income reported, taxes due, the refund due, etc.) That private Indemnification will not preclude the IRS from pursuing both spouses.

Even if the IRS finds that more taxes are due and attributed to the declarations or omissions of one party, in the eyes of the IRS, such additional tax liabilities will be deemed a joint obligation, and the IRS can go after both parties for payment. The non-offending spouse will thereafter seek to enforce the Indemnification Agreement for reimbursement from the offending spouse.

If you are in need of assistance regarding filing taxes during a divorce jointly in PA or surrounding areas, please contact Family Law Attorney Mary Cushing Doherty at 610-275-0700 or email her at mdoherty@highswartz.com.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered legal advice or a substitute for legal representation.

Updated for 2020, learn from a family law attorney if spousal support changes and APL guidelines help or hurt, in terms of one’s personal cash flow.

On December 28, 2018, new Pennsylvania spousal support changes and APL guidelines were issued that took effect on January 1, 2019. Litigants and lawyers both need to understand the new Pennsylvania Guidelines. If it is time for an award of support, everyone who gets or pays spousal support (or alimony pendente lite, “APL”) will be affected by the change to the support rules.

Since 1980, a dependent spouse can get support from the income superior spouse during the pendency of the divorce called alimony pendente lite (APL). There are some limits as to the length of time and in some cases, the dependent spouse will not qualify. In most cases, however, when a married couple is separated, spousal support applies; if a divorce is pending, APL applies regardless of the claim that the recipient is at fault.

The biggest change in spousal support/APL: new formula and approach for first time orders

The biggest change in calculation of spousal support/APL was triggered by the change in the tax laws. Effective January 1, 2019 new orders for spousal support, APL and alimony no longer have special tax treatment. Before that date, an order or signed agreement would lead to the inclusion of the amount in the taxable income of the recipient and a tax deduction for the payor. Voluntary payments without an agreement or order never qualified for the special tax treatment.

That meant that if someone paid $1,000 a month in spousal support, APL or alimony, the payor got a $12,000 tax write-off and would save federal taxes on $12,000 of income. In comparison, the recipient would have another $12,000 of taxable income so the receipt of the money came with a price tag.

The purpose of the rules is to offset the change in the tax impact. No longer will a new spousal support, APL or alimony agreement or order trigger the tax impact.

The change in support rules for new awards starting in 2019 means the amount of the payment is going to drop to adjust for the absence of the tax benefit or bite. If a person was paying spousal support, APL, or alimony and enjoyed that extra deduction, that payor will continue to keep the tax benefit under the old tax laws because it is based on a pre-2019 order or agreement. The payor might not want to modify the order in 2019. A new order will not continue the tax deduction benefit. In many cases where the payment was significant and the tax benefit was significant, the payor and payee will be disappointed by the new guidelines. The discounted obligation may not be comparable to either the payee’s or payor’s after tax benefit.

The 2nd critical difference under the new rules: reallocating the “extras”

There is a second critical difference in the approach to spousal support under the new Rules. The new Guidelines provide for the initial calculation of spousal support/APL and then the support court will shift that amount of money from the payor to the recipient, and the payor will have lower net income for the purpose of contribution to expenses in addition to the monthly Guideline amount. Likewise, the recipient is deemed to have higher net income to pay for extras. This changes the percentage contribution to reasonable extra expenses. The extras include medical insurance premiums and uncovered medical. When there are children, the adjusted percentages apply to child care, educational needs and some extra curricular expenses.

For example, in the past, if the payor made four times as much money as the payee, assuming $4,000 per month net of taxes, while the recipient earned $1,000 net a month, the payor was obligated to pay 80% of medical insurance premiums and 80% of medical expenses (which are in excess of $250 per year). For children the payor also owed 80% of child care, necessary educational expenses, and some extraordinary expenses that were found to be appropriate for the family. That percentage contribution has now changed for every new case that includes spousal support/APL under the January 1, 2019 amendments to the rules.

Using the hypothetical, if the income superior spouse nets $4,000 per month, and the lower income spouse nets $1,000 a month, with the new formula the dependent spouse will get $700 per month in spousal support. The dependent spouse will then be assigned income of $1,700 a month, and the income spouse will have income of $3,300 per month. The income superior spouse will no longer owe 80% of medical insurance and the extras, but only 66%.

With the shift in relative income, the support guidelines for a family with combined income of $5,000 will pay combined $1,415 per month for two children. For this hypothetical, assume the family medical insurance is employer provided and assume payor has partial custody, under 40% of the time. Under the old approach the higher income spouse would pay 80% of the Guideline child support amount; that parent would owe $1,132 to the dependent spouse. Starting in 2019, due to the shift of income as a result of spousal support/APL, the income spouse only owes 66% or $934 a month. The total (spousal and child) under new rules is $1,634. Under old rules the total was about $1,664. A decline of $30 appears a modest difference.

Parents will feel the bigger impact of the shift in percentage contribution to extras like medical insurance, educational needs and child care. If educational and child care total $2,000 per month the split is now $1,320 by payor; $680 by lower income parent. Compare that with $1,600 or $400. The contribution to medical and extras will shift significantly.

For spousal support without children, the payor owes $920 under the new Guidelines, compared with $1,200 under the old rules. If the payor owed taxes based on a 25% tax bracket the drop is not so significant, however, the dependent spouse now owes 38.4% of medical insurance and uncovered medical (after the first $250 per year). The payors who were at a higher tax bracket can no longer deduct spousal support, but pay less toward medical expenses.

In summary, if you only pay or get child support, the changes in the rules are relatively modest. In contrast, the shift in the approach to payment of spousal support or APL changes the amounts for all.

The regulations from the IRS only partially clarify the modification questions

If someone is paying spousal support, APL, or alimony starting before 2019 and enjoys that extra deduction, at time for modification the parties will usually continue to keep the special tax treatment under the old tax laws because it updates a pre-2019 order or agreement. The parties will continue to treat the payment as deductible by the payor and included in the recipient’s income, unless the parties put in writing that they want to forego the old tax treatment. The question arises in the event the pre-divorce spousal support/APL is replaced by a new order under a separate provision in the law, the alimony award. Is this a new Order or in the nature of modification of a pre-2019 obligation? Each taxpayer needs to check updated IRS regulations to determine if this qualifies as a modification of the pre-2019 award or if it must lose that tax treatment under the tax law change effective in 2019. Until the IRS clarifies this, it’s important to get specific tax advice.

If you are in need of assistance regarding 2019 Spousal Support changes or new APL guidelines in Pennsylvania or surrounding areas, please contact Family Law Attorney Mary Cushing Doherty at 610-275-0700 or email her at mdoherty@highswartz.com.

Expungement of a PFA Order in Pennsylvania is a question that Family Law Attorneys hear a lot. The answer depends on how far the Protection from Abuse proceeded through the legal system. Let me explain.

By way of background, a Protection from Abuse Order, or a “PFA Order” as it is more commonly called, is a remedy available to victims of domestic abuse pursuant to a portion of the Pennsylvania statutes known as the Protection from Abuse Act. An individual who is seeking protection under the Protection from Abuse Act must file a Petition setting forth the allegations of abuse and the basis for which the individual is seeking court relief. The Court has the power to enter an immediate, temporary PFA Order upon receipt of the Petition; however, the defending party is entitled to a prompt hearing on the merits of the allegations within 10 days.

What can I expect from a PFA Order?

The entry of a PFA Order is a grave matter. The length of the Order can be for up to 3 years, with the option of extending the Order even longer at the conclusion of the initial period. The Order provisions can be extremely restrictive and life changing, to say the least. A typical PFA Order can include:

• a ban on contact between the parties
• an award of possession of the parties’ residence to the victim-party
• custody provisions
• the relinquishment of firearms

Violations of a PFA Order carry hefty fines and the very-real threat of incarceration. In short, a Petition for a PFA Order is not a matter to be taken lightly.

A PFA Order can also have long-lasting effects on the defending-party’s professional and social life. It is unquestionable that a PFA Order, even if long expired, carries a heavy stigma in society and can be a large burden to overcome in future employment, educational and social endeavors.

For this reason, individuals who are facing PFA litigation or are already subject to a PFA Order often wonder what remedies are available to them to remove the PFA litigation and any resulting Order from the court record.

Can I get a PFA Order Expunged from my Record?

Our Superior and Supreme Courts of Pennsylvania have had the opportunity to weigh in on this issue with three published decisions entered from 1997 through 2007. The conclusion reached is that an expungement of a PFA Order is only available where the Order never progressed beyond the issuance of a Temporary PFA Order. In other words, an expungement is not available where there has a been a finding of abuse by the Court and a final Order entered.

Examples of Expungement of a PFA in PA:

• In the P.E.S. v. K.L. case, a 1998 Superior Court of Pennsylvania case, a Petition for Protection from Abuse was filed, but a temporary Order was not entered. Neither party appeared for the hearing and no further action was taken on the Petition. The Court, influenced by the negative implications associated with a Protection from Abuse record, agreed to dismiss the stale PFA Petition and expunge the underlying record.
• In 2000, the Supreme Court of Pennsylvania weighed in on this issue in the Carlacci v. Mazaleski case. In that matter, a Temporary PFA Order was issued and continued as a temporary Order by agreement of the parties for a short period of time. After that period of time passed, the parties agreed that the Temporary PFA Order should be declared “null and void.”The Supreme Court of Pennsylvania approved of the Court’s rationale in P.E.S. v. K.L. and approved of an expungement of the underlying PFA record, where, again, there was never a hearing or finding by the Court of abuse and the matter never progressed beyond the Temporary PFA Order stage.
• The most recent published decision on this issue comes from the Superior Court of Pennsylvania in the Charnik v. Charnik case. In that opinion, the Court declined to extend the expungement remedy to cases where a final PFA Order was entered by the Court after a hearing on the matter.

If you are facing a Petition for a PFA Order, it is vital that you speak to a Family Law attorney to gain an understanding of the legal ramifications of a PFA in PA, your likelihood of success based on the facts of your specific case, alternate solutions to a PFA request, and any long-term expungement prospects.

If you have any questions about PFA Orders and procedure, please contact Elizabeth Early at 610-275-0700 or via email at eearly@highswartz.com.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.