Happy New Year! As 2018 ramps up, there are lots of new caveats in the law for family practitioners to consider. Tax reform and the new child support parenting expense adjustment lead the way. Both are certain to cause all of us to re-think cash flow and support calculations in divorce and paternity cases.
Aside from number crunching, some interesting issues have cropped up outside of Minnesota. Will the attention that Illinois received in amending its divorce statutes to take into account the well-being of a pet start a national trend? How will legalized recreational marijuana use in California affect divorcing parents who use?
New tax laws
On December 22, 2017, President Donald Trump signed into law the first substantial reform of the United States Tax Code in over 30 years. The changes will impact people from all walks of life – including couples seeking a divorce.
Of significant importance to family law attorneys, alimony payments will no longer be deductible to the payor or considered income to the payee. Considering that payments have been tax deductible for 75 years, this is a major shakeup.
The new law only applies to divorce and separation decrees entered after December 31, 2018. A decree entered prior to the end of the year remains subject to the long-standing rules concerning deductibility and income taxation. Lots of questions remain.
How will the court treat spousal maintenance provisions within a prenuptial agreement signed prior to the new legislation if divorce occurs after January 1, 2019? How will the court treat requests for modification of a decree entered before January 1, 2019?
What’s the practical effect of all of this? Some argue that it may decrease the parties’ ability to reach agreement on the issue – especially since the payor will no longer realize a tax incentive when paying spousal maintenance. Concurrently, the payee is likely to push for as much as alimony as possible, given that every dollar is received tax-free.
Our view? There will not be a substantial impact one way or the other. It should not prove difficult to educate a client, or the court, about the old law and arrive at “net” figures, instead of “gross” figures. The only potential sore spot involves an inability to use the tax code to create support dollars through differing marginal tax rates.
There are a number of other key variables to consider, aside from the new alimony rules, in running cash flow scenarios, including: (1) a change in individual tax rates; (2) doubling of the standard deduction; (3) elimination of the personal exemption; (4) cap on state and local tax deductions; (5) expansion of the child tax credit; (6) new tax credits for non-child dependents; (7) expanded use of 529 savings account dollars.
Even if your client is going to divorce prior to December 31, 2018, the seven changes noted above are already in effect. Take them into account in determining “need for” and “ability to pay” spousal maintenance. Exercise caution in using any outdated financial planning software.
Child support cliff correction
In 2016, Governor Dayton signed into law an overhaul of the parenting expense adjustment found within Minnesota’s child support guidelines. The aim was to right the “cliff” that resulted in a substantial change in monthly child support when an obligor’s parenting time fell below 45.1 percent.
Critics of the current law suggest that treating a parent who exercises close to one-half of the available parenting time the same as a parent who exercises just 10 percent of the available parenting time is unjust. They argue that the “cliff” fails to take into account the fact that child-related costs increase as more parenting time is exercised.
In response, a new formula was created that provides an overnight-by-overnight parenting expense adjustment – a “slope,” not a “cliff.”
The new parenting expense adjustment formula goes into effect on August 1, 2018. It might just take you eight months to figure out the math – or you can simply rely on the state’s forthcoming, new and improved, child support calculator.
Well-being of pets in divorce
As of Jan. 1, 2018, Illinois courts must take into account the well-being of a “companion animal” as part of a divorce. This new provision in the law is receiving national attention – which suggests that change may be on the horizon in Minnesota as well.
What is a companion animal? The new law doesn’t specifically define the term, but does exempt service animals from consideration. In other words, the law is aimed solely at pets.
Illinois previously characterized pets, through silence in dissolution laws, as personal property – like artwork. Minnesota law continues to treat pets the same way. Strange, considering the loving bond many of us share with cats and dogs.
The new Illinois law is not perfect – but merely a step toward recognizing the unique value of an animal. Nowhere in the new law are the terms “best interest” or “custody” referenced. Pets are still property – but treated with more favor than pots and pans.
Legalized Recreational Marijuana
California recently became the seventh state to legalize recreational marijuana – joining Alaska, Washington, Oregon, Colorado, Maine and Massachusetts. As of the new year, anyone over the age of 21 can purchase pot without medical justification. Minnesota, on the other hand, allows the use of marijuana for medicinal purposes only.
We raise this issue to point out the national the stigma surrounding the use of marijuana continues to wane. It probably will not be long before judges and custody evaluators are less concerned about whether “use” has occurred and, instead, focus on the nature of the use itself – much like alcohol.