Spouses can be compelled to file joint tax returns. Such was among the rulings made by Essex County Supreme Court Justice Robert J. Muller on a motion for pendente lite (temporary) relief made in his May 20, 2014 decision in the divorce action, S.Z. v. C.Z. (N.Y.L.J. June 9, 2014).

The parties had been married for 25 years, when this divorce action was filed in March, 2014. They own 6 parcels of realty including the marital residence on which there is a farm. The wife left the marital residence in December, 2013 with 3 of the parties’ 9 children. 6 of the children are under the age of 21: the 3 who live with the wife, 2 live with husband, and apparently the 6th began living on his own.

Prior to reaching the tax  issue, Justice Muller made rulings on:

  • temporary maintenance for the wife (in which he denied the husband’s request that such be paid in the form of produce, meat, eggs, vegetables, etc., from the family farm);
  • child support for the under-21 6 children;
  • health insurance and expenses;
  • appraisal and counsel fees;
  • access by the wife to personal property left by her at the marital residence; and
  • access to a home equity line that apparently did not exist.

Then, Justice Muller addressed the wife’s request for an order directing the parties to cooperate in the timely filing of a joint income tax return for 2013. Granting that relief, the Court stated:

While the April 15 deadline for filing has now come and gone, defendant indicates that the parties’ accountant has filed an extension for them. This aspect of the motion is therefore granted to the extent that the parties are directed to cooperate in the filing of their 2013 income tax return prior to October 15, 2014.

Comment: It would appear that this aspect of the decision was contrary to law. In Teich v. Teich, 240 A.D.2d 258, 658 N.Y.S.2d 599 (1st Dept. 1997), it was held that compelling a spouse to file a joint tax return is “contrary to Federal tax law, which gives each spouse unqualified freedom to decide whether or not to file a joint return, and beyond the trial court’s equitable powers.” However, the First Department did note that any adverse financial consequences of a spouse’s refusal to sign joint and/or amended returns can be taken into account in distributing the marital property.

Debra A. Whitson, Whitson Law, of Elizabethtown represented the wife. The husband represented himself.

New York’s Domestic Relations Law §25, enacted in 1907, provides that a marriage is valid, even in the absence of a marriage license, if it was properly solemnized. However, New York County Supreme Court Justice Matthew F. Cooper, in his May 29, 2014 decision in Ponorovskaya v. Stecklow held that D.R.L. §25 could not be used to validate a marriage ceremony that failed to meet the  legal requirements of Mexico where the ceremony was performed. While so holding, Justice Cooper called for the statute to be amended or repealed, and joined the debate on whether Universal Life Church “ministers” could “properly solemnize” marriages.

Justice Cooper’s recitation of the facts merits quotation:

[Ms. Ponorovskaya], who is a clothing designer and business owner in Manhattan, and [Mr. Stecklow], a lawyer, began their relationship in 2004. While in Mexico for a 2009 New Year’s celebration, [Mr. Stecklow] proposed to [Ms. Ponorovskaya] overlooking the Mayan ruins in Tulum. The parties subsequently planned a Mexican destination wedding at the Dreams Tulum Resort & Spa. . . . On February 18th, the couple had a wedding ceremony on the resort’s beach. The ceremony was performed under a chuppah, a canopy under which a couple stands during a Jewish wedding. Certain Hebrew prayers were recited, vows were exchanged, and there was a glass-breaking ritual, as is customary at Jewish weddings.

Despite these traditions, the ceremony was not performed by a rabbi. Instead it was conducted by [Mr. Stecklow]’s cousin, Dr. Keith Arbeitman, a dentist who lives in New York. In 2003, in order to perform a marriage for friends, he became an ordained minister of the Universal Life Church (“ULC”), a distinction easily achieved by paying a fee on the ULC’s website. . . . [A]t oral argument on the motion, [Ms. Ponorovskaya]’s counsel produced a certificate that he printed off the internet certifying that Dr. Arbeitman is indeed a minister in good standing with the ULC. Likewise, during the ceremony Dr. Arbeitman told the audience, “I am an ordained minister — this will be a legal union.”

Continue Reading Invalidity of Licenseless Mexican Marriage Calls For Dismissal of New York Divorce Action

Filing income tax returns as “single” for the 11 years before a decedent’s death, did not, as a matter of law, estop a woman from claiming to be the decedent’s surviving spouse in contested estate proceedings. So held New York County Surrogate Nora S. Anderson in the May 22, 2014 decision in Estate of Tran (pdf).

Sang Kim Nguyen filed a petition to be appointed Administratrix of the Estate of Truong Dinh Tran. Ms. Nguyen claimed to be Mr. Truong’s widow under the common law of Vietnam. Separate cross-petitions for appointment were filed Mr. Truong’s alleged son, duaghter’s and grandson, who all sought summary dismissal of Ms. Nguyen’s petition.

Mr. Truong died at the age of 80 on May 6, 2012, leaving an estate that has been estimated to be worth more than $100 million.

According to Wikipedia, Truong was the principal owner of the Vishipco Line, the largest shipping company in South Vietnam in the 1970s. As a shipowner, he earned millions of dollars hauling cargo for the United States military. Truong left Vietnam on April 30, 1975, the day that Saigon fell to the communists. Truong boarded one of his eleven ships and traveled to the United States with two suitcases of gold.

Continue Reading Filing Tax Returns as “Single” May Not Estop Claim to Be Decedent’s Widow

The IRS is enhancing processes to address the discrepancies between the deductions taken by alimony payers and the income reported by alimony recipients. This is in response to a report of the Treasury Inspector General for Tax Administration issued March 31, 2014 (TIGTA #2014-40-022).

Alimony is a payment to or for the benefit of a spouse or former spouse under a divorce or separation instrument, including decrees and certain agreements. If classified as alimony under the Internal Revenue Code, the amount is entitled to be deducted by the payor and the same amount must be included in the income of the recipient.

For 2010, a total of 567,887 taxpayers claimed alimony deductions totaling more than $10 billion. For that same year, with 266,190 (47%) of those alimony payors’ tax returns, there was either no alimony income reported, or there was a different amount of income reported on the returns filed by the corresponding alimony recipients. Bottom line: $2.3 billion in total alimony deductions had not been reported as income by the recipients.

The report also noted that IRS processes do not ensure that the taxpayers taking an alimony deduction report the social security number (Taxpayer Identification Number [TIN]) of the recipient. Moreover, the IRS failed to assess penalties totaling $324,900 on alimony payors who did not provide the recipients’ tax identification numbers.

IRS has responded that it has enhanced its examinations. Filters have been improved and the IRS will continue to review and improve its strategy to reduce the compliance gap. In addition, the IRS has revised its procedures to ensure the penalties are assessed when appropriate.

In an April 14, 2014 decision of the United States Tax Court, Judge Ronald L. Buch upheld the disallowance of an alimony deduction where the payments were terminable, among other events, upon the high school graduation of the taxpayer’s youngest child.

After more than 15 years of marriage and 3 minor children, Allen Johnson and his wife were divorced in 2006. Pursuant to their divorce decree, Mr. Johnson made “spousal maintenance” payments to his ex-wife and claimed an alimony deduction on his 2008 Federal income tax return.

Apparently incorporating a settlement agreement, the spousal maintenance payments were subject to a child-related contingency. Specifically, Mr. Johnson’s maintenance obligation would terminate upon the occurrence of any one of the following events:

  • the graduation from high school of the youngest child;
  • the remarriage of Mr. Johnson’s ex-wife, or
  • the death of either Mr. Johnson or his ex-wife.

The divorce decree, itself, stated that the spousal maintenance should be deductible to Mr. Johnson under under Internal Revenue Code §215 and includible in his ex-wife’s gross income under I.R.C. §71.

The divorce decree also obligated Mr. Johnson to pay $500 per month, adjusted for cost of living, for the support of his minor children until any one of a series of events occurs (including graduation from high school).

On his 2008 Income Tax Return, Mr. Johnson deducted his spousal maintenance payments as alimony. A certified public accountant prepared the original return based on the divorce decree. Mr. Johnson’s ex-wife reported all of the spousal support payments received from Mr. Johnson as taxable income on her return.

However, the Internal Revenue Service disallowed the alimony deduction and determined a tax deficiency. The I.R.S. also imposed an accuracy-related penalty under I.R.C. §6662(a). Mr. Johnson filed a petition disputing the adjustment and the accuracy-related penalty.

Ruling in Johnson v. Commisioner of Internal Revenue, T.C. Memo-2014-67, 2014 Tax Ct. LEXIS 63, Judge Buch upheld the I.R.S.’s refusal to allow the alimony deduction. However, the Court held that Mr. Johnson would not be liable for the §6662(a) penalty as he acted reasonably and in good faith.

Judge Buch noted that I.R.C. §215(a) allows a deduction to the payor for an amount equal to the alimony paid during the taxable year to the extent it is includible in the recipient spouse’s gross income under §71(a).

Whether a payment constitutes alimony is determined by reference to §71(b)(1), which defines “alimony” as any cash payment if:

  1. the payment is received by a spouse under a divorce or separation instrument;
  2. the divorce or separation instrument does not state that the payment is neither includible in gross income nor allowable as a deduction;
  3. the payor and payee spouses are not members of the same household when the payment is made; and
  4. the payment obligation terminates at the death of the payee spouse and there is no liability to make either a cash or a property payment as a substitute for the payment after the death of the payee spouse.

Section 71(c)(2), however, provides that the amount of any payment that is subject to “contingencies involving child” must be considered payment made for the support of the child. The Code specifically lists a child leaving school as an example of such a contingency.

Even if there are separately allocated child support payments, payments denominated in a decree as alimony (maintenance) will still be viewed as child support if the decree contains an explicit contingency related to a child. Here, as the divorce decree clearly stated that the support payments would terminate upon the graduation of the youngest child, the Court was compelled to characterize the payments as child support.The fact that the decree specified that the payments were to be deducted by Mr. Johnson was not controlling. The intent of the parties was not controlling.

It is certainly not a rare problem. When confronted with fraudulent income tax returns, what is a divorce court to do? Should they be used as swords or shields?

In her January 31, 2014 decision in Morille-Hinds v. Hinds, Supreme Court Queens County Justice Pam Jackman Brown appears to have disregarded the failure to report a husband’s income on the parties’ joint income tax returns when recognizing his claim to a 50% share of marital property. Nevertheless, those returns were honored when fixing the wife’s entitlement to child support.

The parties, both 54, married in 1993. The wife had commenced this divorce action in 2007. The husband had appealed from the 2009 decision of Judicial Hearing Officer Stanley Gartenstein who had awarded him only 15% of the marital property. The J.H.O. had also imputed to the husband an annual income of $80,000 for the purpose of determining his child support obligation. The Second Department reversed, holding that decision was patently unfair to the husband. The case was sent back for a retrial on the issues of equitable distribution and child support.

Continue Reading Fraudulent Tax Returns in Divorce Actions: Sword or Shield?

1040.jpgThe Appellate Division, Second Department, has again told J.H.O. Stanley Gartenstein that it was improper for him to award nontaxable spousal maintenance.

In Siskind v. Siskind, in addition to awarding the wife $65,000 per year in nontaxable maintenance until the wife reached her 65th birthday, J.H.O. Gartenstein equitably distributed the parties’ assets, awarded child support and a $340,000 counsel fee, and secured the husband’s support obligations with a $4 million life insurance policy (reduced on appeal to $3 million).

In its November, 2011 modification of that award, the Second Department recognized the presumption that spousal maintenance should be taxable income to the recipient spouse, and deductible to the payor. The appellate court stated:

. . . there was insufficient evidence justifying the Supreme Court’s direction that maintenance be nontaxable to the plaintiff, which is “a departure from the norm envisioned by current Internal Revenue Code provisions.”

In 2007, in Grumet v. Grumet, the Second Department had modified J.H.O. Gartenstein’s award to the wife of non-taxable maintenance, declaring that in the absence of a stated rationale for a departure from the norm envisioned by the Internal Revenue Code provisions, a maintenance award should be taxable.

Maintenance is appropriately taxable income to the recipient. Baron v. Baron (2nd Dept. 2010), Markopulous v. Markopulos, 274 A.D.2d 457, 710 N.Y.S.2d 636 (2nd Dept. 2000) ; see also Taverna v. Taverna (2008), where the Second Department modified the trial court award by making maintenance taxable. Such may have been the holding because the trial court properly declined to consider the husband’s tax liabilities resulting from the liquidation and distribution of investment accounts incident to equitable distribution, as the husband had failed to offer any competent evidence concerning the liabilities which would be incurred. See Fleishmann v. Fleischmann (2010 Supreme Westchester Co., Lubell, J.)

Continue Reading The Taxability of Spousal Maintenance Payments: a Subject of Inconsistent Court Decisions

square peg1.jpgEntering open-court oral stipulations of settlement to a divorce action is treacherous.  It’s easy to miss something or be imprecise in language.

However, striking the deal while the iron is hot is a necessary part of matrimonial litigation.  Letting the parties walk out of the courthouse without putting the day’s agreement “on the record” may cost the parties their deal.  Emotions, particularly in divorce cases, often cause second (and hundredth) thoughts on settlement provisions.  Giving friends and family one more opportunity for input may likely undermine the day’s efforts.

However, there are reasons that the typical written settlement stipulation consumes scores of pages. The boilerplate and legalese so offensive to the public is the necessary consequence of the thousands of decisions which interpret the words found in or missing from decades of previous settlements or otherwise requiring attention in any final agreement.  Moreover, without reflecting on the written word, it’s easy just to miss things.

Take the recent Second Department decision in Zuchowski v. Zuchowski.  The parties’ oral in-court stipulation announced that “all joint bank accounts have been split to the mutual satisfaction of the parties and here and forward each party shall keep any bank accounts in their respective names . . .”

Continue Reading The Nature of 529 Education Savings Plans Should Not be Disregarded Under the Guise of Divorce Stipulation Interpretation

Have you looked at an IRS Form 1040 (pdf) lately?

Looking at the 1040 is supposed to begin the C.S.S.A. calculation for determining child support.  For actions commenced on or after October 13, 2010, it is also the first step when determining temporary maintenance. When computing child support under either the Family Court Act or the Domestic Relations Law, the calculation starts with a determination of parental income. F.C.A. §413(c)(1) or D.R.L. §240(1-b)(c)(1). Determining parental income under either F.C.A. §413(b)(5)(i) or D.R.L. §240(1-b)(b)(5)(i) begins by looking at the:

gross (total) income as should have been or should be reported in the most recent federal income tax return.

The recent amendment to D.R.L. §237(B) adopts the C.S.S.A. definition to begin the calculation of a temporary support award under D.R.L. §237(B)(5-a)(b)(4):

“Income” shall mean:

(a)  income as defined in the child support standards act . . . .

There actually is a line on the federal income tax return which reports the “total income.”  It’s line 22: Total Income.jpg

Although “gross” income is a term in the statute, but not the 1040, its context is made clear when reference is made to the calculation of Adjusted Gross Income which begins on line 23.

Continue Reading "Gross (Total) Income" for the Purposes of Child Support and Temporary Maintenance

Retirement Plan.jpgAfter 36 years of family law practice, I pride myself on having a good idea of what I don’t know.

The good news is that I can reach out for the help needed to make sure the bases are covered when drafting a divorce settlement agreement.  Matrimonial litigation has spawned a host of forensic specialities eager to offer proof on issues and to implement settlements and awards.  They’re also there to assist a settlement.

Consider pensions.  There are plans covered by the Employee Retirement Income Security Act (ERISA), a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry. There are also private plans which are not covered by ERISA, military and other governmental plans, etc.

Generally, pension rights or benefits accumulated during a marriage are to be divided on divorce, whether or not the pension is in “pay status.”  However, unlike dividing a bank account, splitting one spouse’s retirement benefits is not as simple as writing a check.  A Domestic Relations Order (DRO) or a Qualified Domestic Relations Order (QDRO) is necessary to effectively transfer rights to the employee’s spouse.  Such an Order may also be used to divide I.R.A.s, 401(k)s, and other assets without triggering a taxable event.  Without such an Order, the “owner” might be exposed an income tax liability were the plan to be accessed to get the money to pay the spouse.

Pension plans carry benefits beyond the monthly payment after retirement.  There may be health and/or death benefits.  Elections may be allowed which significantly effect available benefits. May a spouse collect before the employee retires?  May a joint survivorship option be pursued? Keeping track of what those benefits may be for any particular plan and how to divide them is a specialty unto itself.

Consider the March 15, 2011 decision of the Second Department in Coulon v. Coulon. In that case, the parties’ settlement provided for the wife to receive a share of the husband’s pension. However, the stipulation was silent with regard to the plan’s death benefits.  The wife was not, by the settlement agreement, entitled to be designated as a surviving spouse under the pre-retirement and post-retirement survivor annuity provisions of the plan.  The court held the wife was not entitled to the any portion of the plan’s death benefits.

A Qualified Domestic Relations Order . . . entered pursuant to a stipulation of settlement ‘can convey only those rights to which the parties stipulated as a basis for the judgment’. . . . Thus, a court cannot issue a QDRO more expansive or ‘encompassing rights not provided in the underlying stipulation.’

When drafting settlement agreements, I often place a call to Bill Burns of Lexington Pension Consultants, Inc. Since I will probably use Lexington after the agreement is signed to draft the Plan and arrange for its approval by the Plan Administrator, on occasion I will call Lexington to make sure that I am made aware of the plan options in advance of drafting the settlement agreement.  I may have Lexington review my proposed agreement provision.  Lexington, itself, markets its service of providing the specific information needed to structure a settlement that addresses all pension/retirement assets, while assuring that the terms of the agreement will conform to the rules of the particular retirement plan.  There certainly are other specialists, but I have worked with Lexington for years; and if it ain’t broke, I won’t fix it.

Making use of the forensic specialists to craft the setllement agreement is cost efficient for the client and better assures that disputes will be avoided in the future.