Category Archives: Child Support

Alimony, Child Support

The “six-month” rule in the Alimony/Child Support context.

This article applies to a limited number of folks, but if it applies to you, a mistake could really hurt you financially.

Two issues that get resolved during many folks’ divorces are Child Support and Alimony.   It seems like a pretty simple thing – the Order or Agreement specifies a time period that Child Support and Alimony will be paid.

However, there is a federal tax issue lurking in the background for those folks who have kids who will turn 18 within six months of the time that Alimony payments are scheduled to end.

Internal Revenue Code (IRC), Section 71(c) provides that Alimony payments cannot be fixed as Child Support.  A subsequent IRS Temporary Regulation (Temp. Reg. §1.71-1T(c), Q-18) states that:

“To be considered as maintenance, the payments must meet two tests:

a.Single Reduction Test: Payments are not to be reduced not more than six months before or after the date the child is to attain the age of 18, 21 or the local age of majority.

b.Multiple Reduction Test: Payments are not to be reduced on two or more occasions which occur not more than one year before or after a different child of the payor spouse attains a certain age between the ages of 18 and 24, inclusive – and is the same age for each child. Temp. Reg. §1.71-1T(c), Q-18.”

In plain English, this means that if your Alimony is set to be reduced six months before or after your child turns 18, or if your Alimony payments are set to be reduced on 2 or more occasions within a year of  another of your child(ren)’s attainment of the same age between 18-24 years old, your Alimony could potentially be treated as Child Support by the IRS.

Why does this matter?

It matters because Alimony is generally tax-deductible to the payor spouse and Child Support is not.

A real world example:  You and your spouse separate on March 1,  2015, when your son is 15.  His birthday is January 25th.  You execute a Separation Agreement on May 1, 2015.  In addition to requiring you to pay Child Support, your Separation Agreement states that you will pay Alimony to your spouse for three years, ending with the April 1, 2018 payment.

Does the person paying Alimony have a potential problem with the IRS?  Yes.

The paying spouse has deducted three years’ of Alimony payments from his federal tax income.  If the IRS chooses, because his/her son turned 18 within six months of his last Alimony payment, it can deem his/her Alimony payments as Child Support under IRC Section 71(c) and add the Alimony deductions back to his/her income and make him/her pay tax, penalties and interest on that income recapture.

How could this be avoided?  Simple.  Structure the Alimony payments such that the ending date is at least 181 days before the child’s 18th birthday or 181 days after the child’s 18th birthday.   In the example above, had the payor simply paid a little less each month, but set the last payment date at August 1, 2018, the Agreement language would likely not have triggered the language in IRC Section 71(c).

It should be noted that there have been people who have gone to tax court and successfully defended their “maintenance” (Alimony) deduction even though the payments ended six months before or after his or her child turned 18, but do you really want to have to hire an attorney and spend months or years litigating when the problem is so easily preventable?

Child Support

Dealing with Child Support Enforcement

If you are a non-custodial parent and are unfortunate enough to have to deal with your district’s local Child Support Enforcement office, this article is for you.

To give you some background and general information, the Federal Government mandates that certain social services programs be administered at the State level. The idea is that certain medical, educational and economic services are needed by folks in the 50 states, and the States must provide the services.

In North Carolina, the state government agency that oversees these various social programs is the Department of Health and Human Services.

DHHS has several “divisions,” and one of those divisions is the “Division of Social Services,” or DSS. DSS provides services to families and children.

DSS provides training and assistance at the county level for the Child Support Enforcement units. For purposes of this article, I will refer to the county Child Support Enforcement units as “CSE” from this point forward. CSE units include caseworkers, child support attorneys and other employees in counties throughout North Carolina.

One federal law which applies to child support cases is “Title IV of the Social Security Act of 1975.” This is the law which provides money to administer the Child Support programs in states and counties, including in North Carolina. You may have seen the phrase IV-D on your Court Orders or other documents. “IV-D” is a type of child support case in which a custodial parent is receiving services from a county Child Support Enforcement office. There are other types of child support cases, including “IV-A” and “IV-E,” but that isn’t the focus of this article. In addition, there are also child support cases that do not involve the Child Support Enforcement Division, in which the parties have chosen to handle their child support issue privately and thus have an Order or Agreement that does not involve CSE.

There are several things to remember when you receive letters, notices, motions and other court paperwork from CSE.

One, the folks at CSE are paid by the State of North Carolina to see that as much of your money as possible will be taken from you and given to your child(ren)’s custodial parent. Notice that I did not say that the money will go to your child(ren). I said that the money will be given to child(ren)’s other parent. That is a critical thing for you to understand because although many CSE caseworkers and attorneys pretend that they are working “for the children,” it is a fact that a great majority of the child support money that is given to your child(ren)’s other parent does not get spent on your child, but instead gets put in the other parent’s pocket and wasted on non-child expenses (and just so you know, there is very little that you can do about this – the child support laws are excellent at taking your money from you, but they are horrible at ensuring that the money goes to your child(ren). That’s a topic for another article, though, and I’ll leave it at that for now. CSE personnel may fully understand this, but make sure you understand that they don’t care. They don’t work for you, they don’t care about your situation and many times they take full advantage of people who do not know the law and do not have an attorney.

Two, there are many laws in place that are supposed to be followed in the determination of how much child support a non-custodial parent has to pay, but there are a lot of CSE caseworkers and attorneys who either don’t know what they are or don’t care what the law says. If they take advantage of you because you don’t know the law and don’t have an attorney, that’s your fault. Again, they don’t work for you, they don’t care about you, and many of them don’t care if what they are doing is dishonest or unethical. There are many ethical and upstanding CSE caseworkers and attorneys out there, but there are some sleazy ones, too. You can protect yourself by either consulting with or hiring an attorney before your court date.

Three, you are setting yourself up for frustration if you expect to be treated with “fairness” by CSE personnel. They aren’t paid to be “fair.” They are paid to take as much of your money as possible. They aren’t “on your side.” It’s not their job. In my practice, I have worked with several CSE caseworkers and attorneys who are honest, hardworking, fair, ethical people. And unfortunately, I have also worked with some who are dishonest and unethical. Because the dishonest and unethical people exist, you need to protect yourself as much as you can by consulting with or hiring an attorney to protect your interests.

Four, once a Child Support Order is entered, it is VERY difficult to change it. In some cases, it’s impossible.

If you have read this carefully, you understand how critical it is consult with an attorney about your case. That’s the big piece of advice from this article – GET AN ATTORNEY when faced with a child support court date.

The child support statutes in North Carolina are not that difficult to understand. Basically, and this is a very general summary, most child support cases involve putting numbers into a child support calculator. The calculator then shows the amount you have to pay. Here’s what goes in:

1. Your income
2. The other parent’s income
3. The cost of the children’s health insurance
4. Work-related childcare expenses.

It seems simple enough, but sometimes it is anything but simple. For example, what if your ex won’t give the CSE folks his or her income information? What if he or she makes $50,000 per year but lies to CSE and says he or she makes $25,000? The CSE folks may care if your ex is lying, but they may not. They may put the trial off until your ex provides the information, but then again, they may not. What if they hand you a worksheet with the wrong income on it and tell you “accept the deal” or go to trial? You may know your ex is lying, but if you have to go to trial against the CSE attorney, you have to prove it. Knowing something and proving it in court are two different things.