Posts by Joseph W. Cunningham, JD, CPA

May 2016 : Court of Appeals Upholds Equal Division of Federal Tax Refund

Posted by Joseph W. Cunningham, JD, CPA
Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature

by Joseph W. Cunningham, JD, CPA

Excerpt:

Court of Appeals Upholds Equal Division of Federal Tax Refund, Demil v Demil, Mich App No. 323205 (10/20/15), and Tips on Providing for Tax Overpayments and Estimated Taxes

Facts

  • The parties agreed to a settlement in June 2013 which, inter alia, provided that they would split the federal tax refund resulting from their 2012 joint income tax return, as follows:
    • “IT IS FURTHER ORDERED AND ADJUDGED that the parties shall equally divide any refund they receive from the 2012 Federal Tax returns. (sic) The defendant shall provide proof of the refund received directly to the Plaintiff within one week of receipt.”
  • Neither party signed the return which was led electronically by their tax preparer in April 2013.
  • The refund was represented to be “in the approximate amount of $2,372”.
  • In fact, the refund was $34,318, of which H applied $23,000 to his 2013 federal tax liability.
  • During the divorce proceedings, H had represented that $2,300 “was a correct characterization of the refund and that he did not have any other assets to disclose to the court.”
  • W later learned that the refund was substantially more than what had been previously indicated and led a mo- tion to enforce the provision in the judgment for equal division.
  • e trial court rejected H’s claim that a large component of the refund was attributable to his father’s income which was reported on the joint tax return ”for estate planning and income tax purposes” and ruled the $34,318 refund be divided equally.
  • H appealed.

Court of Appeals Decision

  • The Court upheld the trial court’s decision ruling that it did not err in its interpretation of the tax refund provision in the judgment of divorce.

Tips on Providing for Division of Tax Overpayments Joint and Several Liability

  • Joint Tax Refunds
    …
Continued in PDF file below… “Court of Appeals Upholds Equal Division of Federal Tax Refund”
View / Download May 2016 Article – PDF File

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)

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April 2016 : HUDSON V. HUDSON, Mich App No. 322257

Posted by Joseph W. Cunningham, JD, CPA
Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature

by Joseph W. Cunningham, JD, CPA

View Full PDF file

In a published case, the Court of Appeals rules on availability of a single life annuity for H in W’s teachers’ pension where same is not available to W in H’s federal pension. Hudson v. Hudson, Mich App No. 322257 (1/2/16)

Facts

  • The 2013 divorce judgment provides that (1) W is to receive a 50% interest in H’s accrued Federal Employees Retirement System (FERS) pension and (2) H is to receive 39% of W’s accrued Michigan Public School Employees Retirement System (MPSERS) pension.
  • H presented an EDRO for entry in which he elected to receive his 39% interest in W’s MPSERS pension as a single life annuity (SLA) based on his life–one of the three options offered in the Office of Retirement Services (ORS) model EDRO form.
  • W objected to the EDRO because FERS does not o er an alternate payee the option of a SLA based on the alternate payee’s life.
  • The trial court signed the EDRO, ruling, in part, that MCL 552.101(5) allows an alternate payee such as H to select whatever option is available under MPSERS.
  • MCL 552.101(5) provides, essentially, that, unless specifically excluded, a proportionate share of all component parts associated with a pension are transferred with part of a pension via QDRO or EDRO.
  • The trial court stated that, since the right to elect a SLA on his life was not expressly excluded, H was entitled to do so under MCL 552.101(5).
  • The trial court also ruled that the agreed on judgment provided for division of the pensions and that, under court rule, the parties are bound by what “they put on the record in the courtroom.”
  • W appealed.

Court of Appeals Decision

  • The COA (Court) upheld the trial court’s decision, but not based on MCL 552.101(5).
  • Rather, the Court ruled that the right to elect a form of benefit–such as a SLA on one’s life, or a joint & survivor annuity–is not a “component” of a retirement benefit.
  • Thus, the Court distinguished selection of a form of benefit from “components” such as cost of living adjustments, survivor benefits, early retirement supplements, and death benefits.
  • But, the Court agreed with the trial court that “the parties were bound by the language of the judgment of divorce.”
  • The Court stated that the fact that W could not also elect a SLA based on her life does not “render the resulting division contrary to the parties’ stated intent in the judgment of divorce.”
  • The Court noted that the parties had the opportunity “to fully explore available form of payment options” before agreeing on a settlement and that it was “incumbent on the parties and their counsel to include within the judgment of divorce a determination of all rights of the parties relative to each other’s pension plans.”

Comments on the Case

  • The case illustrates the importance of discovering the pertinent features of each retirement plan involved in a divorce.
  • This is important so that an equitable division of such benefits can be achieved.
  • It is also important so that a divorcing party knows before agreeing to a settlement what income – and the timing thereof – will be available post-divorce.
  • Finally, it is simply good practice to be as specific as possible in the retirement benefits provision of a judgment of divorce or settlement agreement.
  • Doing so minimizes disputes and misunderstandings concerning what a party believed he or she was to receive.
  • Since the COA rarely publishes family law cases, evidently the Court wanted to send a message about the importance of clearly specifying the rights of parties concerning retirement benefits divided in divorce.
View full PDF file below… “Hudson V. Hudson, Mich App No. 322257”
View / Download April 2016 Article – PDF File

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)

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February 2016 : November 2015 Changes to Social Security Law Affect Divorcing Spouses

Posted by Joseph W. Cunningham, JD, CPA
Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature

by Joseph W. Cunningham, JD, CPA

Excerpt:

The Bipartisan Budget Act of 2015 (Act), enacted November 2, 2015, includes significant changes which limit two strategies previously used by spouses and divorcing spouses to maximize Social Security benefits.

Though Social Security benefits are not subject to division in divorce, they are a source of income often taken into account in determining “money available” with respect to spousal support.

“File and Suspend”
Law Prior to the Bipartisan Budget Act of 2015

Since 2000, a worker – assume H – could file for benefits at full retirement age – currently 66 – then suspend payment until age 70 while continuing to work and accumulate additional retirement credits, thus increasing the benefit payable at age 70.

However, because H led for benefits – notwithstanding that his benefit payments are suspended – his spouse (W) – or ex-spouse married to him for 10 years – could then draw a spousal benefit based on his earnings record. The spousal benefit is 50% of the worker’s benefit.

And, if W is working, she may continue accumulating additional retirement credits based on her earnings while collecting the spousal benefit. Then, when she retires, she can draw the higher of the spousal benefit or the benefit based on her own earnings record.

Revision by the Bipartisan Budget Act

Under the Act, the “file and suspend” option remains intact. But, during the suspension period, no benefits may be paid to a spouse or a child based on the worker’s earnings record.

So, in short, any benefits based on the worker’s earnings record – including the spousal benefit – may not be paid until the worker begins receiving benefits.

Effective Date and Planning Opportunity …

Continued in PDF file below… “November 2015 Changes to Social Security Law Affect Divorcing Spouses”
View / Download February 2016 Article – PDF File 

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)

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January 2016 : 2015 Federal Income Tax Rates & Brackets, Etc., and Selected IRS Publications

Posted by Joseph W. Cunningham, JD, CPA
Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature

by Joseph W. Cunningham, JD, CPA

Excerpt:

2015 Federal Income Tax Rates & Brackets and Related Information

The following presents the 2015 tax rates applicable to taxable income of taxpayers filing tax returns as single, married ling jointly, or head of household.

(table of tax rates and further info in PDF file)

Continued in PDF file below… “2015 Federal Income Tax Rates & Brackets, Etc., and Selected IRS Publications”
View / Download January 2016 Article – PDF File

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)

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December 2015 : US Treasury and IRS Issue Proposed Regulations on Federal Tax Aspects of Same Sex Marriage

Posted by Joseph W. Cunningham, JD, CPA
Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature

by Joseph W. Cunningham, JD, CPA

View Full PDF file

As has been well chronicled, the US Supreme Court ruled, in its June 26, 2015 Obergefell v. Hodges landmark decision, that under the equal protection clause of the 14th Amendment, states must issue a marriage license to same sex couples who choose to marry and who otherwise qualify.

On October 21, 2015, the US Treasury and Internal Revenue Service (IRS) issued Proposed Regulations implementing the Supreme Court’s decision for federal tax purposes.

Background

  • In 2013, the IRS issued a revenue ruling providing that same sex marriages that are legally valid in the state in which the marriage was performed are to be recognized as valid marriages for federal tax purposes (Rev. Rul. 2013- 17, Aug. 29, 2013).
  • The IRS ruling followed the US Supreme Court E.S. Windsor case (2013-2 USTC) in which the Court ruled that Section 3 of the 1996 Defense of Marriage Act-based on which the IRS would not recognize same sex marriages for federal tax purposes–was unconstitutional.
  • Thus, for all states that then recognized same sex marriage, such couples married pursuant to state law were considered married for federal income, estate, and gift tax purposes.
  • But, married status for tax purposes does not include civil unions, domestic partnerships, or similar relationships not recognized as marriage under state law.

New Proposed Regulations

  • The new Regulations essentially adopt the provisions of Rev. Rul. 2013 -17 and make it clear that they now apply in all states.
  • As under the revenue ruling, married status does not include civil unions, domestic partnerships, or similar relationships not recognized as marriage under state law.

Comments on the New Regulations for Same Sex Couples Lawfully Married in Michigan

  • Marital status for income tax purposes affects:
    • Tax filing status;
    • Personal and dependency exemptions;
    • The standard deduction;
    • Earned income tax credit;
    • Child tax credit;
    • Innocent spouse protection; and
    • IRA contributions.
  • Same sex couples must now file as either “married filing jointly” or “married filing separately.” This will be disadvantageous for some couples who would pay lower combined tax filing single status returns, which can be the case if their incomes are relatively close in amount.
  • Married status extends to same sex couples certain estate and gift tax benefits–such as the marital deduction for both estate and gift taxes and the availability of “gift splitting”–essentially, an additional annual exclusion ($14,000 for 2015)–for gift tax purposes.
Continued in PDF file below… “US Treasury and IRS Issue Proposed Regulations on Federal Tax Aspects of Same Sex Marriage”
View / Download December 2015 Article – PDF File

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)

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