Tax Effect on Assets in Divorce

· March 2, 2010

When two spouses divide assets in a divorce, it is important to pay with attention to the tax consequences connected with certain assets. The clearest example is retirement assets. Usually, when someone receives a payment or distribution from a retirement account, it is a taxable event. So, someone in a twenty-eight percent tax bracket, who receives a $3,000 payment from a retirement account will pay tax of $840 on that payment. Essentially, instead of receiving $3,000, the person will receive net value of $2,160.

If in a divorce, one spouse receives a bank account with $3,000 and the other spouse receives a retirement account with $3,000, it may appear to be an equal award of property. But since the bank account funds do not involve tax consequences, and the retirement funds do involve tax consequences, the division of assets is not really equal.

On a larger scale, this can have a substantial impact on the fairness of a property division. If one spouse is awarded the marital homestead, with estimated value of $300,000, and a $200,000 mortgage, that spouse is essentially receiving a $100,000 asset. If the other spouse accepts a $100,000 retirement account in exchange for the equity in the house, he or she will not be able to make use of the retirement funds without dealing with the tax liability connected with the retirement funds. Assuming thirty percent tax liability, the spouse awarded the retirement account ends up with essentially $70,000, instead of $100,000.

It is common for the property division to be adjusted to provide for a fair division of assets that accounts for taxes. For instance, in the above example, each spouse could be awarded $50,000 from the retirement account (and each consequently paying their own respective share of the taxes); and the spouse not awarded the house could be given a $50,000 lien on the house (or the house could be sold, and the proceeds divided equally).

In other cases, the property division might not be adjusted because other aspects of the property settlement are favorable in some way to the spouse receiving the taxable retirement asset. What is important is for both spouses (and/or the family court judge) to be aware of the tax effect, and to make a purposeful decision about how to devise a fair property settlement in light of those consequences.

2 Comments

Categories : Divorce

Contested Child Custody and Mental Illness

Posted by Gerald Williams

· February 2, 2010

· 6 Comments

In a contested child custody dispute, if one of the parents suffers from mental illness, it is a factor to be considered in the court’s custody decision. Many parents going through a custody battle suffer from conditions such as clinical depression, bipolar disorder, obsessive compulsive disorder or a personality disorder.

The statutory provision of Minn. Stat. Section 518.17 regarding mental illness provides for the court to consider “the mental and physical health of all individuals involved; except that a disability, as defined in section 363A.03, of a proposed custodian or the child shall not be determinative of the custody of the child, unless the proposed custodial arrangement is not in the best interest of the child.”

(Note: the aforementioned definition of “disability” is “any condition or characteristic that renders a person a disabled person. A disabled person is any person who (1) has a physical, sensory, or mental impairment which materially limits one or more major life activities; (2) has a record of such an impairment; or (3) is regarded as having such an impairment.”)

If one parent (Parent A) suffers from mental illness, the question is whether the other parent (Parent B) holds a “trump card” as a result of first parent’s mental disorder. A case of untreated or unmanaged mental illness may place the parent (Parent A) at a disadvantage. It is important to note the difference, however, if a parent is managing their mental disorder. The issue is the child’s best interests, so if the mentally ill parent is managing their illness (with proper medication, following a caregiver’s recommendations, etc.) then it does not compromise the child’s best interests to be in the care of that parent, and may not provide the other parent (Parent B) with a “trump card.”

A parent suffering from mental illness is well-served to be candid about their condition. In most cases, the parent’s openness will cause the family court to consider the mental health issue in a light most favorable to the candid parent.

6 Comments

Categories : Child Custody

Children and Passports

Posted by Gerald Williams

· January 26, 2010

· 2 Comments

Children under the age of sixteen are not issued passports without the consent of both parents. The Two-Parent Consent Law was revised in February 2008 to include all children 16 and under, and not just children 14 and under.

Both parents must be personally present for the passport application submission, to provide identification and original birth certificates. If one parent can provide the other parents’ notarized consent form, then the passport can be obtained with the presence of only one parent, who must still present identification and an original birth certificate for the child applicant.

The Department of State provides for exceptions to the requirement of either both parents’ presence, or the notarized consent of a non-presenting parent as follows:

*Child’s birth certificate lists only one parent
*Child born abroad
*Custody order granting sole legal custody (and not restricting the child’s international travel)
*Adopted child with only one adoptive parent
*Court order specifically authorizing the child’s travel
*Judicially declared incompetence of the non-applying parent
*Non-applying parent is deceased.

If the applying parent or guardian cannot obtain the written consent of the non-applying parent, the applying parent may make a statement under oath explaining the special circumstances that would warrant issuing the passport.

False statements made knowingly and willfully on passport applications, including affidavits or other supporting documents submitted with the application are punishable by fine and/or imprisonment under Federal law.

2 Comments

Categories : Child Custody

Orthodontia Costs and Child Support

Posted by Gerald Williams

· January 20, 2010

· No Comments

If a parent is ordered to pay child support, it is likely that the child support obligation will include a “basic” support obligation, coupled with child care support and medical support. Orthodontia costs are included as part of medical support. Basic support is based upon the income of both parents, based upon a statutory table (similar to income tax tables). But the child care support and medical support are allocated between the parents based upon each parent’s percentage of income.

For instance, a parent whose income comprises sixty percent (60%) of the combined income of the parents (after payment of spousal maintenance, if any) will be responsible for sixty percent (60%) of the child care expenses and medical expenses.

The rationale for the special treatment of child care support and medical expenses is (a) for some children, parents incur child care expenses and for some, they do not; therefore, it would not work out for the same statutory table to be used for both families that do, and those that do not, incur child care costs; and (b) medical expenses (and the insurance coverage thereof) are unpredictable, and variable across families; therefore, it also would not work out for the same table to apply to all families regardless of their medical costs.

Since orthodontic expenses are sometimes elective and/or optional, there is the potential for disputes between parents about whether or not to incur orthodontic expenses. Parents who share joint legal custody share the authority to decide on orthodontia for their children. That is not to say that either parent has veto power over the expenditure of funds on orthodontic care. A family court or parenting neutral charged with the authority to decide the dispute will issue a decision based upon all facts and circumstances, with a focus on what is in the child’s best interests.

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Categories : Child Support

Custody Neutrals

Posted by Gerald Williams

· January 11, 2010

· 1 Comment

Custody evaluations, guardians ad litem, early neutral evaluators, parenting consultants and parenting time expeditors. They are all objective and impartial. Here are the distinctions:

Custody evaluators are appointed by the court or contracted with privately by the parties. The evaluator will meet with the parents, meet with or observe the child (depending on how old the child is) with each parent, and speak with collateral contacts to arrive at recommendations for what is in the child’s best interests. The custody evaluator issues a written report that can be entered as evidence in a contested custody hearing, or used as a basis for negotiated a stipulated parenting plan. The evaluation typically takes 90 to 150 days to complete.

Guardians ad litem are appointed by the court to assess the child’s best interests in a manner similar to custody evaluations, but in many counties they are limited to children in particularly troubling circumstances, such as abuse or neglect. The guardian ad litem’s process can be shorter than a custody evaluation, particularly if the court requests interim recommendations from the guardian. The family court judge may enlist the services of the guardian ad litem to assist in determining both temporary and permanent custody arrangements. The guardian’s recommendations may be the basis for the court’s decision, or a custody stipulation.

Early neutral evaluations have the potential to be shorter terms than other processes. The evaluators (one male, one female) meet with the parents, and typically do not meet the child. Rather than communicating with collateral contacts, the evaluators attempt to facilitate an agreement based upon what the parents themselves raise as concerns about the child and the other parent. The evaluation process transpires early in the proceedings, and is not shared with the family court; so if the parties are unable to reach an agreement, the case will typically proceed to a full-blown custody evaluation.

Parenting consultants are appointed by the parties, and approved by the court, but are not appointed by the court. Typically, they make decisions
(rather than recommendations) which are binding on the parties unless reversed by the family court. As long as a party is satisfied with the parenting consultant’s decision, the process can streamline the resolution of a dispute.

Parenting time expeditors are appointed by the court, and have decision-making authority, but the scope of that authority is narrower than the other neutrals mentioned above. Issues other than parenting time fall outside the scope of a parenting time expeditor. The PTE’s decision is binding on the parties, unless one of the parties seeks review by the family court.

1 Comment

Categories : Child Custody, Guardian ad litem, Parenting time expeditor

Divorce Mediation – With or Without an Attorney?

Posted by Gerald Williams

· January 5, 2010

· No Comments

When a divorce case is submitted to the family law mediation process, the parties sometimes will have their attorneys present, and sometimes will not. Most mediators will not insist on the attorneys being present or on the attorneys being excluded from the process. However, it is also the case that most mediators will require that either both parties have their lawyers attend, or neither. Since the foundation of the mediation process is a balance of power, and an even playing field, the presence of an attorney for one party and not for the other inherently throws off that balance.

One disadvantage of having attorneys attend mediation is the cost to the parties for not only the mediator’s time (most often billed hourly, though we offer flat fee mediation) but the attorneys’ time as well (also usually billed hourly). One disadvantage of excluding attorneys from the mediation session is the prospect that one party (or both parties) consulting with the attorney AFTER the mediation session will thwart any agreements reached during the mediation.

Commonly, the parties agree in advance to the presence, or absence, of counsel. If there is disagreement about this issue, the mediator will likely weigh in to recommend how to proceed; oftentimes based upon how many issues need to be mediated, and how complex the issues are. If there are many contested issues, or any complex issues to be addressed, the mediator is more likely to encourage the attorneys to attend mediation with the parties.

No Comments

Categories : Divorce, Mediation

Marital Interest in Real Estate

Posted by Gerald Williams

· December 14, 2009

· 1 Comment

When a married couple owns a home, both spouses have an interest in the home, whether or not the house is titled in both spouses’ names. So if one spouse lives in a home for two years before the marriage, then gets married, the other spouse’s name does not need to be added to the title for both spouses to have a marital interest in the home.

The marital interest in the home stems from the money the spouses put into the home during the marriage, as well as any market appreciation in the home during the marriage. The spouse who owned the home before the marriage has a nonmarital interest in the house based upon the value of the home at the time of the marriage. The home is presumed to be marital unless and until the spouse with a nonmarital interest proves his or her premarital ownership, and the value of the house at the time of the marriage.

1 Comment

Categories : Divorce

Paternity Presumptions

Posted by Gerald Williams

· November 15, 2009

· No Comments

Minnesota law provides for certain paternity presumptions that govern when there is a dispute over paternity. When a child is born to a married woman, the mother’s husband is presumed to be the father. When a child is genetically linked to a man, the man is presumed to be the father.

In cases in which the husband is not the genetic father, the case may hinge on who seeks to be the father. If the mother of the child separates from her husband, the genetic father may be adjudicated the child’s father without opposition from the husband. If the mother of the child reconciles with her husband, the husband may be adjudicated the child’s father without opposition from the genetic father.

If both men seek to be adjudicated the father, the case may hinge on the family court’s weighing of the facts and circumstances, to determine what is in the best interests of the child.

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Categories : Child Custody

Grandparent Visitation

Posted by Gerald Williams

· October 20, 2009

· 1 Comment

Generally, a grandparent’s right to see their minor grandchild is derivative of the child’s parent’s right to parenting time. That is, the maternal grandparents have access to the child during the mother’s parenting time, and the paternal grandparents have access to the child during the father’s parenting time. In most cases, grandparents do not have the separate right to their own visitation unless their child, who is the parent of the subject minor child, is deceased.

However, Minnesota law does provide for the family court to award visitation to a grandparent if the court finds that such visitation would be in the best interests of the child and would not interfere with the parent-child relationship. The statute expressly directs the court to consider the amount of personal contact between the petitioning relative and the minor child prior to the application for relief.

1 Comment

Categories : Child Custody, General Family Law, Parenting Time

Overnight Parenting Time with Infants and Toddlers

Posted by Gerald Williams

· October 4, 2009

· 6 Comments

When parents have disputes about parenting time in cases involving infants or toddlers, the issue of overnights often arises. In 1999, the Minnesota Conference of Chief Judges approved a “Parental Guide for Making Child-Focused Parenting Time Decisions,” prepared by the Minnesota Supreme Court Advisory Task Force on Visitation and Child Support Enforcement.

Regarding infants and toddlers, the Guide states (as follows in italics):

Parents of infants should establish a parenting time schedule that is consistent, predictable,and routine in nature. Depending upon the noncustodial parent’s availability and caregiving history, the noncustodial parent of an infant should have short (one to three hour) but frequent (two to three times per week) parenting time during the day or early evening. As the child grows from infant to toddler and becomes more comfortable with separation from the custodial parent, the duration of parenting time should increase. For parents who live far apart, the noncustodial parent of an infant or toddler should travel to the residential area of the custodial parent. This may mean that parenting time takes place in the home of the custodial parent or in a nearby location where the child feels comfortable. It is important for parents of infants and toddlers to establish one nighttime caregiver. Overnight and extended parenting time may not be appropriate for infants and toddlers. However, children who are able to make smooth transitions between homes, or who have older sisters or brothers to accompany them on parenting time, may be comfortable with overnight and extended parenting time.

In practice, one key fact regarding this issue is whether the young child has or has not already experienced overnight parenting time. If the child has not yet transitioned to overnights, then the above recommendations are more applicable than cases in which a child has already experienced overnights at the non-custodial home. In other words, the above recommendations cannot be readily invoked to halt overnight parenting time that has already been instituted, particularly if the child is showing no signs of maladjustment to the overnight parenting time.

Another key fact in the practice of implementing parenting time with very young children is the level of cooperation that it requires between the parents to implement frequent and consistent contact between the child and the non-custodial parent. In many cases, the parents are dealing with the parenting time arrangements of an infant or toddler shortly after their breakup. While the angst and bitterness of the parents’ separation may diminish with time, in the interim, it is necessary for the parents to coordinate the parenting time arrangements in the best interests of a child whose age and developmental stage makes that particularly difficult to do.

6 Comments

Categories : Parenting Time

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Minnesota divorce attorney, Gerald O. Williams, represents clients in divorce and family law primarily in the communities of Woodbury, St. Paul, Minneapolis, Eagan, Inver Grove Heights, Cottage Grove, Maplewood, Oakdale, Lake Elmo, and Stillwater, as well as the greater seven county metro area including Washington, Ramsey, Hennepin, Dakota, Anoka, Scott, and Carver.

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