Recent Articles

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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November 2015 : SKELLY at Odds with Michigan Statute

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

by Joseph W. Cunningham, JD, CPA

Excerpt:

In its 2009 published decision in Skelly v Skelly (No. 287127, 12/29/09) (Skelly), the Court of Appeals (COA) essentially ruled that employee benefits earned during marriage are not marital assets if subject to forfeiture on the occurrence – or non-occurrence – of an event after the divorce.

The Skelly decision has previously been characterized in this column as arbitrary, overbroad, and inconsistent with the equitable, case specific nature of divorce. What was not mentioned previously is that Skelly is out of step with Michigan statute – MCL 552.18. is was recently brought to my attention by Scott Bassett, who in fact drafted the language that became MCL 552.18 in 1985.

Skelly

Recap of the case:

  • After 25 years of marriage, H filed for divorce.
  • He had attained a high position with Ford and in 2007, in the latter part of his career, was awarded a $108,000 “Retention Bonus” payable in three installments of $36,000 on each of May 31, 2007, 2008, and 2009.
  • Entitlement to the entire bonus was conditioned on his continued employment at Ford through May 31, 2009.
  • The trial court ruled that the first two $36,000 installments were marital property since, evidently, both had been received before the 7/23/08 date of divorce.
  • H appealed.
  • As indicated above, the COA ruled that all three $36,000 payments – including the two received during marriage – were not marital property since all were conditioned on an event occurring after the divorce – H’s continued employment at Ford through May 31, 2009.

MCL 552.18

The 1985 statute, in pertinent part, is as follows (emphasis added):
…

Continued in PDF file below… “Skelly at Odds with Michigan Statute”
View / Download November 2015 Article – PDF File

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

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October 2015 : Overview of Unallocated Family Support Payments

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

by Joseph W. Cunningham, JD, CPA

Excerpt:

Tax Benefit

  • Combined payments of spousal support and child support – referred to as “family support” – are taxable/deductible under IRC Section 71.
  • Family support is advantageous from a tax standpoint if the support payer (assume H) is in a significantly higher tax bracket than the payee (W).
  • By structuring payments as family support, the child support component – which is generally nontaxable/nondeductible – is converted to taxable/deductible.
  • However, so W is not short-changed, the child support component of the family support payment must be in- creased to cover the tax thereon.
  • To illustrate:
    • H’s average combined federal and state tax bracket is 40% and W’s is 20%.
    • In their divorce settlement, spousal support is $2,500 a month and child support is $1,000.
    • After-tax, the payments are as follows:
      (Table in PDF file)
    • If the child support component is increased to $1,450 and included with spousal support as $3,950 family support, the result is:
      (Table in PDF file)
    • So, by converting child support to family support, Uncle Sam kicks in $3,420 a year, split approximately evenly between H and W.

Requirements to Qualify as Family Support
…

Continued in PDF file below… “Overview of Unallocated Family Support Payments”
View / Download October 2015 Article – PDF File

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

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