K-1-cropped-wideIn its May 11, 2016 decision in Eifert v. Eifert, the Appellate Division, Second Department, appears to discuss the interrelationship between the calculation of child support and the “income” shown on a partnership K-1 tax form. In truth, it does not.

In their divorce settlement agreement, the parties agreed that the father would pay child support consisting of two components. The first component required the father to pay $4,400 per month. As summarized by the Second Department in its opinion, the second component required the father to pay “25% of the income he derived from his ownership of stock in Eifert French & Co.”

Years later, the mother sought to recover child support arrears in the sum of $63,283.25 arising from the second component of the father’s child support obligation. The mother arrived at this sum by performing calculations based on K-1 statements received by the father from Eifert French & Co.

In opposition, the father contended that the second component of his child support obligation should be calculated based only on distribution checks he received from Eifert French & Co, rather than the income reflected on his K-1 statements. Based on that limitation, the father calculated that the correct amount of arrears he owed for this second component of his child support obligation was $21,137.49.

Supreme Court, Westchester County Justice Colleen D. Duffy agreed with the father and found arrears to be $21,137.49. The mother appealed.

Continue Reading K-1 Income and the Calculation of Child Support

Calulator on 100s 6 redThe Third Department gave us insight into its analysis of child support awards in two recent decisions in which it increased those awards.

What to do when the parents’ combined income exceeds the Child Support Standards Act (C.S.S.A.) cap, now $141,000, appears to be, at the trial level, often county-, if not judge-dependent. Use by the lower courts around the state upon these decisions will vary, perhaps greatly.

In Petersen v. Petersen, decided February 26, 2015, the Third Department increased the divorce-action award of Albany Supreme Court Justice Eugene P. Devine (now, himself, sitting on the Third Department).

The parties had one child, born in 1999. After the parties separated and lived apart for several years, the husband commenced this divorce action based on the parties’ separation agreement. After finding that the child support provision of the separation agreement did not comply with the Child Support Standards Act, a trial was held to address, among other things, child support.

Justice Devine granted the divorce, incorporated the parties’ separation agreement except for the weekly child support provision, and ordered the husband to pay child support in the amount of $414 per week, declining to order child support on any income above the C.S.S.A. statutory cap, then $136,000 (and now $141,000). The wife appealed.

Continue Reading Increasing Child Support On Appeal: Awards On Income Over The Cap

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.

Three Second Department decisions within eight days this month reveal the discretion of the trial court when income is not apparent (no pun intended) on a determination of a parent’s basic child support obligation.

In Fein v. Fein, the Appellate Division, Second Department, affirmed the determination of Westchester County Supreme Court Justice Bruce E. Tolbert to impute $125,000.00 as the annual income of the father, and $65,000.00 as the annual income of the mother, but then to cap the non-custodial husband’s support obligation on his share (65.79%) of the $130,000.00 Child Support Standards Act (C.S.S.A.) cap in effect when the 2011 order was made. The court awarded $450.00 per week in child support and also awarded the wife $346.15 per week ($18,000.00 per year) for 3 years as maintenance.

In Fein, the parties had three children (29%). The husband had worked as a trader in the financial industry before losing his job in late 2009. The mother stayed at home with the children. The Second Department stated that it was proper for Justice Tolbert to have imputed to the husband an annual income of $125,000.00 for the purpose of calculating child support, given the plaintiff’s current employment situation, his future earning capacity, and the evidence presented relating to additional streams of income.

[The actual calculation, though, is not discussed. If the combined parental income was imputed to be $190,000.00, the husband’s share would be 65.79% of the total. For the three children, using the formula, the father’s base obligation would be 65.79% of 29% of $130,000.00, or $24,802.83 per year ($476.98 per week). Alternatively, and deducting the $18,000.00 annual maintenance from the $130,000.00 cap, would leave $112,000.00 in parental income. The father’s support obligation based on this sum would be $410.31 per week ($21,336.11 per year). Perhaps the difference was based on attributed FICA and Medicare taxes, or other adjustments.]

More difficult to explain is the January 15, 2014 decision in Best v. Hinds. There the Second Department affirmed the order of Kings County Family Court Alan Beckoff (who, in turn, denied the father’s objections to the order of Support Magistrate John M. Fasone) that granted a father’s downward modification of his child support obligation, but only to $738.00 per month. When doing so, the Family Court imputed an annual income to the father in the sum of $35,000.00.

$738.00 per month for the one child to benefit from this order, would gross up to $52,094.12 per year as the income upon which to apply the C.S.S.A. formula ($738.00 x 12 ÷ 17%). The failure to limit the child support award to the formula application to his imputed income of $35,000.00 per year is more noteworthy, as the father also had custody of three other children. Although the Second Department held that Support Magistrate Fasone’s failure to consider this fact was not properly preserved for appellate review, the appellate court did state that such was not an improvident exercise of discretion. In determining whether the full amount of support under the standard guideline would be unjust or inappropriate, a court may consider the needs of the children of the noncustodial parent who are not the subject of the support proceeding and for whom the noncustodial parent is providing support.

However, the court may only take this factor into consideration where the resources available to support such children are less than the resources available to support the children who are the subject of the proceeding.

Such a finding was not supported by the evidence.

[The May 31, 2012 blog post reported on the Second Department’s decision in Bershadskaya v. Nemirovsky, which reversed a determination of Magistrate Fasone because he did not impute income to a father received in fringe benefits.]

Finally, in the January 8, 2014 decision in Speranza v. Speranza, the Second Department upheld the order of Dutchess County Family Court Judge Denise M. Watson  (who, in turn, denied the father’s objections to the order of Support Magistrate Rachelle Kaufman) that had based a support award on income of the father imputed to be the income represented by the father some five years earlier.

The earlier representation of the father’s annual income of $61,467.00 formed the basis of a November 30, 2007 Family Court support order had been issued on the consent of the parties. In a December, 2010 stipulation of settlement that was incorporated, but not merged into the parents’ 2011 judgment of divorce, the parties agreed that the father’s obligation to pay child support would be suspended for 15 months, after which his child support obligation would resume and be calculated pursuant to the C.S.S.A.

When the mother petitioned the Family Court to so redetermine the father’s support obligation, the father failed to make any financial disclosure. To resolve the matter the Magistrate used the 2007 income figure. That was upheld by the Family Court Judge and, here, the Second Department.

Where a respondent in a support proceeding fails, without good cause, to comply with the compulsory financial disclosure . . . , ‘the court on its own motion or on application shall grant the relief demanded in the petition or shall order that, for purposes of the support proceeding, the respondent shall be precluded from offering evidence as to respondent’s financial ability to pay support’ . . . .

Under the circumstances it was a  provident exercise of discretion to direct that the father pay child support based upon an annual income of $61,467.00.

We don’t know whether the father benefited from this or not. What is clear is that when basing support on imputed income, the trial court has a large degree of flexibility and discretion, both in determining the amount of income imputed and then in how to apply the C.S.S.A.

In FeinEvan Wiederkehr of DelBello Donnellan Weingarten Wise & Wiederkehr, LLP, of White
Plains, represented the mother. Bryce R. Levine  of Jeffrey S. Schecter & Associates, P.C., of Garden City, represented the father.

In Best, Alan S. Cabelly of Cabelly & Calderon,of Jamaica, represented the father.

Whether the payment of union dues is to be deducted for the purpose of determining C.S.S.A. income is to be decided on a case by case basis. Rejecting the deduction in S.H. v. S.H., a June 17, 2013 opinion withdrawn from publication, Supreme Court Clinton County Acting Justice Timothy J. Lawliss held that the father failed to meet his burden to show that those dues did not reduce his personal expenses.

In this divorce action, the father was employed at a union plant and paid monthly union dues to the United Steel Workers.

This opinion concerned only whether or not union dues paid by the father should be deducted from the father’s gross income prior to calculating the father’s income for child support purposes.

Domestic Relations Law §240(1-b) sets forth the methodology the Court must follow to determine the non-custodial parent’s child support obligation. Pursuant to D.R.L. §240(1-b)(b)(5), income for support purposes shall mean, but shall not be limited to, the sum of the amounts determined by the application of clauses (i), (ii), (iii), (iv), (v) and (vi) of that sub-paragraph, reduced by the amount determined by the application of clause (vii) of that sub-paragraph.

Union dues are not a specifically allowed deduction under D.R.L. §240(1-b)(b)(5)(vii), nor does the subsection contain a catch all “other” category leaving deductibility to the Court’s discretion. The question before the Court, then, was whether or not union dues qualify as a deduction under the only possible category: “unreimbursed employee business expenses except to the extent said expenses reduce personal expenditures” (subsection [vii][A]).

Continue Reading Union Dues Do Not, Here, Reduce Income For C.S.S.A. Purposes

Salary.jpgTwo cases this month discussed the treatment of employer-provided fringe benefits in child support determinations.

In his May 14, 2012 decision in K.W. v. M.W., Onondaga County Family Court Judge Michael L. Hanuszczak rejected a father’s objections to the determination of a Support Magistrate. While doing so, Judge Hanuszczak considered the impact of certain union fringe benefits when determining income for Child Support Standards Act purposes. The father, a member of the International Association of Heat & Frost Insulators andAllied Workers Local 30, claimed his income was the union base rate of $28.55 per hour. The Support Magistrate upheld the argument of the mother that the court should also impute the value of contributions to various union benefit plans, bringing the total to $45.35 per hour. Those union plans included the pension fund, welfare fund, annuity fund, apprenticeship fund, industry advancement fund, and LMCT [presumably a Labor Management Cooperate Trust Fund]. Judge Hanuszczak stated:

As a general rule, the Court finds that such benefits must be regularly or periodically received by the recipient or must reduce the recipient’s living expenses to be considered as a part of a parent’s gross income.

Thus, for example, the amount contributed by an employer to the employee’s pension fund, 401k account, or health insurance premium would not be imputed to gross income for the purpose of calculating child support. However, an allowance for a vehicle or cell phone which is used for personal use would be considered for inclusion in the gross income amount. Such a rule would be applied by the court on a case-by-case basis taking into consideration the evidence adduced at trial on that particular proceeding.

Hanuszczak Michael.jpgJudge Hanuszczak’s rule was dicta, remarks not necessary to his determination affirming the Support Magistrate’s holding that the father was not entitled to a downward modification of his support obligation. That result was supported by “other evidence in the record at trial.” The father had failed to demonstrate an adequate change of circumstances to warrant a reduction of his child support obligation.

On May 23, 2012, the Appellate Division, Second Department, in Bershadskaya v. Nemirovsky reversed the determination of Kings County Family Court Judge Arnold Lim which had upheld the order of Support Magistrate John M. Fasone. The Family Court rulings determined that additional income should not be imputed to a father. To the contrary, when ordering that a new hearing be held, the Second Department stated:

Where the father admitted that his company paid for him to lease a late model BMW, where BMW Financial Services documents revealed that he was a general manager with a gross annual salary of $95,000, and where he failed to submit compulsory financial disclosure, it was an improvident exercise of discretion for the Support Magistrate to fail to impute additional income to the father.

The Second Department did not specifically hold that all, or any specified portion of the BMW lease payments must be added to the father’s income; only that the Family Court was incorrect when finding that additional income should not be imputed to the father.

The treatment of fringe benefits is an uncertain area. Courts have included the value of employer-provided housing, but only if residency is not mandatory. Massey v. Evans (4th Dept. 2009), C.H. v. S.H. (Sup. Schenectady 2012). It may be proper to add other benefits such as automobile insurance, gas and oil payments, vehicle maintenance and repair costs, and personal expense allowances. Skinner v. Skinner (241 A.D.2d 544, 661 N.Y.S.2d 648 [2nd Dept. 1999]). Before-tax health insurance deductions have been imputed. Bellinger v. Bellinger (3rd Dept. 2007). Mandatory public employee retirement contributions should not be considered. Ballard v. Davis, 259 A.D.2d 881, 686 N.Y.S.2d 225 (3rd Dept. 1999).

Judge Hanuszczak’s general rule seems fair and workable. Does the fringe benefit reduce living expenses? Is it regularly or periodically received? When the family was together, was it a benefit that directly or indirectly enabled more money to be available for the support of the child? Is it fair to hold that the benefit puts money in the parent’s pocket for which the child should now benefit?

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