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.

A spouse’s pre-divorce judgment death results in the unenforceablitity of divorce action orders, including the automatic orders mandated by Domestic Relations Law §236(B)(2)(b). As a result, Westchester County Supreme Court Justice Paul I. Marx held in his April 17, 2014 decision in A.V.B. v. D.B. that a husband was without a remedy for his wife removing the husband as a beneficiary of her retirment account and life insurance policy.

After 13 years of marriage and two children, the wife commenced this divorce action on September 12, 2012. Pursuant to stipulated Preliminary Conference Orders, it was agreed that the wife would be awarded the divorce on the grounds of irretrievable breakdown, an Attorney for the Child was appointed and the pre-trial schedule was fixed.

On April 22, 2013, the wife committed suicide. During the administration of her Estate, it was learned that on February 14, 2013, while the divorce action was pending, the wife had changed the named beneficiaries on her ING 403(b) account from her husband as her sole beneficiary to the parties’ two children as 50% primary beneficiaries. It was further discovered that on or about March 10, 2013, the wife changed her designation of the husband as the sole named beneficiary on her Prudential life insurance policy to the husband as a 1% primary beneficiary, the parties’ daughter K. as a 49% beneficiary and daughter R. as a 50% beneficiary.

The husband’s counsel then submitted a letter to Justice Marx with a proposed order directing that the named beneficiaries on the wife’s ING account and Prudential life insurance policy revert back to the date of the commencement of the action and directing ING and Prudential to pay out the balance in the wife’s annuity and the “death benefit” under her life insurance policy to the named beneficiaries that existed before the changes were made. At that time, the husband’s lawyer also submitted the supporting affirmation of the attorney for wife’s Estate, declaring that the Estate consented to the proposed order.

Justice Marx declined to sign the proposed order. Instead, the Court scheduled a conference at which the Court directed defense counsel to move by Order to Show Cause. Although no papers were submitted in response to that motion, Justice Marx nevertheless denied it. The relief sought in the motion was not warranted by the law, nor by a good faith extension of the law.

While it is regrettable that Plaintiff violated the automatic orders and seems to have reached beyond the grave to thwart Defendant’s efforts to recover his share of her assets, this Court is unable to remedy the violation in this proceeding.

Continue Reading Automatic Orders, Violated During Divorce Action, Cannot Be Enforced After Pre-Judgment Death

For what expenses will a support payor (here, the husband) receive credit against the retroactive support award made incident to the final divorce determination?

The Second Department clarified the rules in its May 14, 2014 decision in McKay v. Groesbeck.

Six years earlier (!), on a prior appeal (Groesbeck v. Groesbeck, 51 A.D.3d 722, 858 N.Y.S.2d 707 [2008]), the Second Department modified the portions of the parties’ judgment of divorce to make the child support and maintenance awards retroactive to the date the Summons (with notice) requesting such relief was filed. The Court sent the case back to the Supreme Court to calculate the amount of retroactive child support and maintenance, less any amount of maintenance and child support already paid.

Rockland County Supreme Court Acting Justice Victor J. Alfieri, Jr., determined that the husband was not entitled to any credits for any voluntary payments (not made pursuant to a court order). Justice Alfieri directed the husband to pay $28,500 for maintenance arrears and $37,902 for child support arrears.

The Second Department here modified that determination. Once again, the appellate court noted a party’s maintenance and child support obligations are retroactive to the date of the application therefor; here, the Summons with Notice. Any retroactive award must take into account any amount of temporary maintenance or child support which has been paid.

Generally, voluntary payments made by a parent for the benefit of his or her children may not be credited against retroactive awards. Further, a party is not entitled to a credit for payments made to satisfy that party’s own legal obligations that were not made pursuant to a pendente lite order of support.

However, a party is entitled to a credit for payments made to satisfy the other spouse’s legal obligations. Here, the husband should have received a credit towards arrears for any payments he made toward the wife’s car payments and insurance. The husband also should have received credit for one half of the payments he made toward the mortgage and carrying charges on the marital home, as those payments were made to satisfy the plaintiff’s legal obligations.

The matter was once again sent back to Supreme Court for calculations.

Counseling a party as to what payments to make and how, and whether or not to seek a temporary order concerning such payments, is difficult. It is not an exact science, and often involves a balancing of interests and judgment calls.

Randy J. Perlmutter, of Kantrowitz, Goldhamer & Graifman, P.C., of Chestnut Ridge, represented the husband. Julia Masch, of Masch, Coffey & Associates, LLP, of New City, represented the wife.

The non-biological spouse in a same-sex marriage is a parent of the child under New York law as much as the birth-mother. So held Monroe County Supreme Court Acting Justice Richard A. Dollinger, in his May 7, 2014 opinion in Wendy G-M v. Erin G-M.

The birth mother and her spouse were married in a civil ceremony in Connecticut, before New York enacted its Marriage Equality Act (“MEA”). The couple decided to have a child and in October 2011, they both signed a consent form agreeing to artificial insemination procedures. In the consent form, the birth-mother authorized the physician to perform artificial insemination on her, and the spouse requested the doctor to perform the procedure, declaring “any child or children born as a result of “ pregnancy following artificial insemination shall be accepted as the legal issue of our marriage.”

The document was signed by the birth-mother, the spouse, and the physician, but there was no acknowledgment to the signatures before a notary (as required by D.R.L. §73). Both parties underwent artificial insemination for almost two years, until the procedure succeeded on the birth-mother; the spouse then discontinued her treatments. Both the birth-mother and the spouse were both involved in appointments. The spouse attended the pre-birth classes, including breast feeding, baby care, and CPR classes. The spouse participated in the baby showers. The birth-mother celebrated the impending birth of “our” daughter through a Facebook posting.

The spouse was present at the birth of the child and the couple jointly decided the name of the child. When the hospital officials asked for information on the parents, both participated in the discussions and the birth mother acknowledged that the spouse was the parent of the child. The child was given a hyphenated surname of the two women, with the spouse’s name listed first. The birth certificate for the child lists both as the parents of the child.

After the birth of the child, citing marital trouble, the spouse left the household, in her words, to “not cause undue stress or potential other problems.” The child only lived in the same household with the two women for one week before they established separate households.

The action for divorce was commenced by the birth-mother in December 2013, less than then three months after the birth of the child. Before and after commencement, the birth-mother would not permit her spouse to visit with the child. The spouse then filed the instant request for a variety of relief, including access to the child, maintenance, and attorney fees.

Justice Dollinger was called upon to determine whether the spouse who did not give birth to the child (the non-biological spouse), is a parent of the child under New York’s longstanding presumption that a married couple are both parents of a child born during their marriage.

Continue Reading Both Same-Sex Spouses are the Parents of a Child Born During the Marriage

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.

At a divorce trial, testimony by Skype will be allowed for the appraiser of an Oslo apartment. So held New York County Supreme Court Special Referee Louis Crespo in his April 3, 2014 decision in Steineger v. Perkins.

Among other discovery-related applications after the matter had been placed on the trial calendar, Referee Crespo, upon the husband’s request, authorized updated appraisals. These included the parties’ Oslo apartment that had been purchased in or about 2011 for $1,400,000. The Referee noted that the appropriate value should be the most recent date, “as distribution of the marital assets based on older values can result in a windfall profit for one of the parties over the other.”

The Referee also ruled that the husband will be allowed to call the real estate appraiser of the Oslo apartment viz-a-viz [sic; vis-à-vis literally meaning face-to-face] Skype conditioned on the following:

  1. the appraiser speaks the English language without the need of a Norwegian interpreter;
  2. his attorney provides the computer laptop to access Skype by way of the internet;
  3. the appraiser shall be examined in an office without outside interference; and
  4. and that the appraiser consents to the jurisdiction to the Court although testifying outside of New York.

The Court finds that calling a non-party witness, although retained by a party, by way of Skype is reasonable given the time constraints and expense to fly in a witness from Norway for the limited purpose of providing an opinion as to the value of the apartment. In addition, with the use of live, two-way video via Skype, the witness will be subject to cross-examination before the Special Referee and attorneys for the parties, making the testimony reliable.

As the fact finder, the Referee ruled, measuring credibility will not be compromised because the method to measure the same can be had by way of two-way video via Skype. Finally, the opinion testimony will not involve materially disputed facts, such as observations of an event, and will avoid the unnecessary costs of flying in a witness to testify about the value of the Oslo apartment. Referee Crepo noted that this was not a criminal case where a liberty interest is at stake. He found that the Skype protocol in this instance would allow for live witness testimony presented through real-time. Effective cross examination as well as the assessment of the witness’ credibility would not be hampered.

Quoting from Jessica M. Natale, Exploring Virtual Legal Presence: The Present and the Promise, 1 J. High Tech. L. 157, 167 [2002], Referee Crespo noted “The court system has recognized the benefits and validity of being virtually present as opposed to physically present. Virtual presence presents witnesses with an inexpensive alternative to testifying over the Internet via video and audio technology.”

Finally, the Referee stated the Skype protocol was vastly superior to testimony by speaker phone which had been permitted in another case (Superior Sales & Salvage v. Time Release Sciences, 227 A.D.2d 987, 643 N.Y.S.2d 291 [4th Dept. 1996; trial court did not err in permitting defendant’s witness to go on vacation and to conclude his cross-examination testimony by speaker phone]).

Although not cited by the Referee, testimony by Skype was also allowed by Sullivan County Court Judge Frank J. Labuda in People v. Novak, 41 Misc. 3d 733, 971 N.Y.S.2d 197 (2013). The defendant, charged with murder, requested that Skype be used as his desired witness would be unable to appear due to work constraints. Judge Labuda noted that the witness would be subject to cross-examination before a jury, and concerns regarding constitutional Confrontation Clause issues were minimized.

Increasingly, courts have closely examined the specific decision-making roles of each parent, whether or not the parties share joint custody or one parent is awarded sole custody.

The general rule is that joint or shared custody, requiring both parents to agree on decisions, is inappropriate where parents have demonstrated an inability or unwillingness to cooperate in making decisions concerning their children.

In its April 23, 2014 decision in Thorpe v. Hamoet, the Second Department affirmed the determination of Kings County Family Court Judge Anthony Cannataro to award a mother sole medical and educational decision-making authority, and to otherwise award both parents joint decision-making authority with respect to all other custodial matters outside the spheres of medical and educational needs.

Although it was evident to the appellate court that there was some antagonism between the parties, it was also apparent that both parties generally behaved appropriately with their child and in a relatively civilized fashion toward each other. Furthermore, there was no evidence that the parents were so hostile or antagonistic toward each other that they would be unable to put aside their differences for the good of the child.

Sometimes defining sole or joint custody differently, courts have found ways to erode all-or-nothing awards even when parents are antagonistic towards each other. Judges seem comfortable splitting decision-making into distinct areas; giving parents separate “zones” or “spheres” of responsibility.

Thus, in addition to education and medical areas, Courts have granted one parent decision-making authority in the spheres of religion, hygiene, mental health, dentistry, summer activities, extra-curricular activities, weekend activities, social events and finances.

In this fashion, both parents may remain more actively involved in their children’s lives. Still further, if both parents must live within this balance of power, détente between the parents is encouraged. Indeed (continuing the political metaphor), each parent may develop a policy of openness (glasnost), promoting consultation, compromise, and more meaningful exchange of information.

In all events, it would seem that the parents, themselves, are in the best position to allocate the particular subjects as to which there will be required consultation, or required agreement, or specifically-allocated final authority.

Litigation would not seem the best-suited forum for reaching an agreement on these matters. Alternate Dispute Resolution (ADR), whether through mediation or the Collaborative Divorce Process, seems a far better choice.

In Thorpe, Meredith A. Lusthaus, Coffinas & Lusthaus, P.C., of Brooklyn, represented the mother. Francine Shraga, of Brooklyn, represented the father.

One of the most difficult tasks facing family law judges is balancing the competing interests of each parent and the children in relocation cases. However, two recent Second Department decisions might indicate that a 50-mile rule is emerging.

In Katz v. Shomron, the Second Department on April 9, 2014, affirmed the order of Kings County Family Court Judge Michael L. Katz, which after a hearing granted the mother permission to relocate with the parties’ children from Brooklyn to Rockland or Westchester Counties. Without providing details, the appellate court agreed that the mother had established a change of circumstances and that the proposed relocation would serve the subject children’s best interests. The mother also established that the proposed move would not have a negative impact on the children’s relationship with the father.

We are told nothing more. However, the listing of counsel for the parties shows that the father resides in Belfast, Maine, and represented himself [there was no mention of how often he saw the children]. Gordon A. Burrows, of White Plains, N.Y., represented the mother. Karen P. Simmons, of the Children’s Law Center New York (Janet Neustaetter, of counsel), was attorney for the children.

In Caruso v. Cruz, the Second Department on February 13, 2014, reversed the order of Orange County Family Court Judge Lori Currier Woods, and granted the mother’s application to relocate with the children 57 miles from Orange County to New Rochelle.

The parties were the parents of 9-year-old twins and a 20-year-old son. They were divorced in 2004 by a judgment that incorporated, but did not merge with their stipulation of settlement. The stipulation provided for the parties to share joint legal custody of the subject children, with the mother having physical custody and the father having liberal visitation. The same provision included the parties’ agreement that neither party would move “beyond a one hundred mile radius of one another so as not to disrupt visitation with the children.”

In 2006 the parties commenced custody cross-petitions that were resolved by a 2007 order of the Family Court that continued joint legal custody, with the mother having physical custody, and set forth a comprehensive liberal visitation schedule for the father, which included alternate weekends, Tuesday and Thursday afternoons, and shared holidays and summers.

[Once the 2004 arrangement was modified, of what import was the 100-mile radius clause of the 2004 agreement? Did the 2004 agreement provide for visitation on 6 out of 14 days (alternate weekends plus 2 afternoons each week)? Did the father exercise this substantial visitation?]

In July, 2011, the father commenced this proceeding alleging that he had learned that the mother was in the process of moving 57 miles away to New Rochelle. The father alleged that it was not in the  children’s best interests to move to New Rochelle, because his visitation would be disrupted. Rather, he argued, their best interests would be served by awarding him sole legal and physical custody. The mother opposed the father’s petition, and requested leave to relocate with the subject children to New Rochelle.

After a hearing, Judge Currier Woods agreed with the father and denied the mother’s application to relocate, awarding the father sole legal and physical custody of the subject children. The Second Department reversed.

Although the Family Court was properly concerned about the impact that the move would have on the father’s relationship with the subject children, the record demonstrated that the relocation to New Rochelle would not “deprive the father of regular and meaningful access” to the children.

The Second Department further concluded that the Family Court should have denied the father’s petition for sole legal and physical custody of the subject children.

[W]hile we are mindful that the hearing court has an advantage in being able to observe the demeanor and assess the credibility of witnesses,  we would be seriously remiss if, simply in deference to the finding of a Trial Judge, we allowed a custody determination to stand where it lacks a sound and substantial basis in the record.

Here, the Family Court’s award of sole legal and physical custody to the father lacked a sound and substantial basis in the record. The Second Department believed Judge Currier Woods gave “undue weight” to particular instances of conflict between the parties, and to the mother’s failure to consult with the father before determining to move with the subject children to New Rochelle. Furthermore, the trial court failed to give sufficient weight to the fact that the mother had been the primary caregiver for the subject children for their entire lives, and had almost single-handedly addressed their medical and educational needs. In addition, the Family Court failed to give sufficient weight to the fact that awarding the father sole legal and physical custody of the subject children would unavoidably separate them from their younger brother from the mother’s second marriage.

Neal D. Futerfas, of White Plains, N.Y., represented the mother. Barbara J. Strauss, of Goshen, represented the father. Andrew W. Szczesniak, of White Plains, N.Y., was attorney for the children.

A wife has been awarded the $475,000 annual rent received by a husband who leased out the parties’ East Hampton residence. The parties’ divorce Modification Agreement provided that the wife shall have “exclusive use and possession of the East Hampton Residence . . . until September 30, 2017 or her earlier remarriage or cohabitation with an unrelated male.”

Affirming the order of New York County Supreme Court Justice Laura E. Drager, the First Department in its March 25, 2014 ruling in Hirschfeld v. Hirschfeld, found that the plain language of the agreement was sufficient to withstand the husband’s argument that the Modification Agreement limited the wife’s use and possession of the East Hampton Residence to summers only.

Justice Drager properly measured the wife’s damages for the husband’s breach of the Modification Agreement, where he leased the East Hampton Residence to third parties during the wife’s period of exclusive use and possession. The fair market rental value of the property was the proper measure of damages, as evidenced by the actual rent of $475,000 per year received by the husband during 2009 through 2012. There was no basis for requiring the wife to prove how many times or on which occasions during the course of each year she would have actually used the property if it had been made available. The husband was given credit for for the $175,000 payments he made to the wife in 2009, 2010 and 2011, and any sums paid to the wife for 2012.

The appellate court also upheld Justice Drager’s award of 3% prejudgment interest as a proper exercise of her discretion.

Ira E. Garr of Garr Silpe, P.C., of Manhattan represented the husband. James A. Moss of Balber Pickard Maldonado & Van Der Tuin, PC, of Manhattan represented the wife.

Unemployment, alone, is not sufficient to avoid incarceration for the willful failure to pay child support. So held the First Department when on April 8, 2014 it affirmed the determination of Bronx County Family Court Judge Sidney Gribetz in Gina C. v. Augusto C.

Based upon the fact-finding determination of the Support Magistrate, Judge Gribetz had found that the father willfully violated a child support order, and committed him to the New York City Department of Corrections for a term of four months intermittent weekend incarceration, unless discharged by payment of $7,000.00 to the Child Support Collection Unit.

The First Department held that the Support Magistrate properly found that respondent wilfully violated the order of child support. The mother made her prima facie showing that the father’s failure to pay child support over a five year period was a willful violation of the order of support. The father failed to respond with a showing that the violation was not willful by evidence that he was unable to make the required payments. The father and his witnesses gave conflicting testimony as to whether he was working. There was no basis upon which to disturb the Support Magistrate’s credibility determinations.

Further, the appellate court held that unemployment alone does not establish inability to pay, especially given the father’s failure to show that he used his best efforts to obtain employment commensurate with his qualifications and experience. Moreover, prior to each court appearance, the father had appeared with a promise of employment and a minor payment on his outstanding arrears, only to lose the new job and discontinue support between hearing dates.

The father’s last minute attempts to avoid the consequences of his previous failure to pay, including staving off a potential jail sentence, should not be countenanced.