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Divorce

NJ Alimony Reform Bill Signed Into Law by Governor Christie

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Major changes are here for those currently going through a divorce. On September 10, 2014 Governor Christie signed the NJ Alimony Reform Bill, bill A845, into law.

What does the new law accomplish?

• For marriages less than 20 years, the length of alimony payments cannot exceed the length of the marriage unless a judge determines that there are “exceptional circumstances”.

• Judges would be able to end alimony payments if the recipient cohabits with a partner, even if they don’t get married.

• Judges would have the authority to modify alimony payments if the payer has been unemployed for more than 90 days.

• The term “permanent alimony” would be replaced with the language “open duration alimony”.

While the new law applies primarily to future divorces, it does allow for a “rebuttable presumption” that alimony payments will end once the ex-spouse making the payments reaches the full retirement age for Social Security.

Jeff Urbach, Partner at Urbach and Avraham, CPAs spearheads our litigation support department which specializes in matrimonial accounting. Jeff and his team of valuation analysts and fraud examiners guide couples and their attorneys through the myriad of financial and tax issues of divorce. Please call our office if you or someone you know is going through a divorce to see how we can assist and what effect the new law could have on your situation.

Creative Advanced Divorce Tax Tip – Monetizing NOLs

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All family law attorneys understand the basics of income taxation as it relates to a marital dissolution: Alimony is taxable to the recipient and deductible by the payor and child support is not taxable.

In complex cases with closely held businesses, it’s important the attorney (or an expert) review not only the business tax returns, but, the personal income tax returns as well.

If one spouse owns all or part of a pass-through entity such as a Subchapter S or Partnership, there may be hidden assets not usually found on the marital balance sheet. Those assets are called Net Operating Losses (NOLs) carry-forwards.

Taxpayers can carry back these losses two years (and get refunds) and/or elect to carry them forward against future income. (NOLs can be carried forward twenty years.)

Well, guess what? When assets are split, the NOLs travel with the business owner. And, assuming its material, they have a value which needs to be monetized. Why does it have value? Because it will save the business owner spouse $ X amount of taxes over the next twenty (or less).

A very, very simple example. The couple divorces and a $1,000,000 NOL travels with the husband. (No you can’t split the NOL) The non-titled spouse’s lawyer never thought to monetize the NOL (or even the expert CPA, who is a generalist without matrimonial litigation experience).

Two years after the divorce the company turns around and the owner spouse has income of $200,000. Pick your bracket, whether it’s 28% or 35% or 40% (I rounded.). The NOL was could be worth somewhere between $56,000 and $80,000. Three years after the divorce, the owner spouse has income of $200,000. Another $56,000 to $80,000. You get the picture. What if all the NOL is used? That can be a savings of possibly as much $400,000.

Failure to monetize this asset and award the non-titled spouse an off-set, can be the basis of a malpractice suit!

Improved Lifestyle After Your Breakup? It Could Cost You in Alimony

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When it comes to the modification or termination of alimony as a result of cohabitation, financial assistance received from the new cohabiter is not the only factor taken into consideration. The New Jersey Appellate Court recently upheld its ruling that indirect economic benefits may be considered as well.

In Reese v. Weis, Defendant Rebecca Weis was receiving $100k annually in alimony from her ex-husband Ronald Reese since their divorce in 1996. In 1998 she began cohabiting with William Stein and his two children. Ronald filed a motion in 2008 to terminate his obligation to pay alimony citing the defendant’s cohabitation. The trial judge determined that defendant’s 10-year cohabitation afforded her significant benefit such as that alimony was no longer warranted. Defendant cross-appealed the ruling, claiming that her monthly contribution to a joint account she held with Stein, in an amount equal to what she received as support from Plaintiff, coupled with proof of annual expenses exceeding the provided support proved she paid her way without Stein’s economic assistance. She also argued that the luxuries and gifts that accompanied her new lifestyle with William should not be considered an economic benefit to terminate her alimony.

The Court however upheld its ruling, rejecting her claim that her enhanced lifestyle should not be a part of the alimony equation. The panel stated to the contrary, that economic benefits, such as when the cohabitant pays for housing costs, as well as more subtle economic benefits, may legitimately be taken into consideration.   

 

NJ Court Rules Discretionary Trust not Included in Alimony Calculation

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The alimony statute, N.J.S.A. 2A:34-23, in determining an alimony award considers “the income available to either party through investment of any assets held by that party.” The question that arose in Tannen v. Tannen, a New Jersey Appellate Division case, is whether income from a discretionary trust falls under the category of “income available”. [Read more…] about NJ Court Rules Discretionary Trust not Included in Alimony Calculation

Property Settlement Agreement Missing “Little” Detail makes for Big Consequences

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Overlooking a minute detail in the Property Settlement Agreement (PSA) is by no means as minor as it may seem. It often results in much grief, wasted time, and squandered money – for both litigants, as well as taxpayers funding the judicial system. In Dawn Zera v. Kevin Krushinski, an incomplete PSA resulted in just that.

Dawn and Kevin were divorced in Jan. 2006. The judgment of divorce (JOD) failed to designate who could claim the children as dependents on his or her tax return. While the JOD ended the marriage, an ensuing nightmare was just beginning. More than six long, costly years of litigation later, on May 22, 2012, the NJ Supreme Court ruled that the parents alternate odd and even years.

The Moral: Divorcing spouses must scrutinize the PSA, making sure the lawyers covered everything. It is wise to have a tax accountant review the PSA for all tax issues.   The investment of time and effort may spare you loads of grief.      

 

Alimony Article in NJ Family Lawyer Written by Jeffrey Urbach

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Our litigation support partner Jeffrey Urbach has co-authored a just-released article for the New Jersey Family Lawyer magazine, June 2012 edition. The article, entitled “Alimony and Taxes,” discusses the basic rules governing alimony as well as lesser known fine points. Jeff covers alimony recapture rules, deductibility of attorneys’ fees, using QDROs to enforce alimony, and alimony trusts. [Read more…] about Alimony Article in NJ Family Lawyer Written by Jeffrey Urbach