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Divorce Mediation Blog

Alimony and the TCJA: Less a Misconception than a Worry, and What to Do About It – A Mediator’s View

Wednesday, August 15, 2018

Levine Dispute Resolution - William M. Levine

By William M. Levine

Call me a skeptic.

I agree with Jonathan E. Field’s excellent essay “Alimony and the TCJA: A Common Misconception” (July 23, 2018), to the extent that he asserts that an alimony agreement that is executed during calendar 2018 should entitle the parties to the continued economic leverage of the alimony deduction, on which many divorcing families have relied since 1942. I wish that I shared Jon’s confidence that what should be will be, but I am less than sure.

Read literally, the 2017 Tax Cuts and Jobs Act permits tax-deductible alimony if contained in “decrees of divorce or separate maintenance or written instruments[s] incident to such decrees…” (my italics). I do not question that tax cases construe “written instruments” liberally, nor do I debate that the “incident to” clause has been applied generously to past taxpayers. But, we live in a time in which political and policy expectations are a wisp in the wind, subject to a profoundly polarized federal legislature and the whimsy of an erratic executive.

Every tax act is a legislative skeleton on which the reigning administration grafts regulations, telling us how the congressional mandate will really work. Witness Jon’s accurately ironic note that the “temporary” treasury regulations of the Tax Reform Act of 1984, that comprise a substantial part of how that set of alimony reforms function to this day, are now 34 years old!

The Internal Revenue Service of Stephen Mnuchin’s Treasury Department is charged with fleshing out TCJA; and it does so in a political/fiscal context. The public face of the alimony deduction repeal was a move to save $6.8 billions of tax revenues over the next decade, to be booked against Congress’ budget reconciliation limit of $1.5 trillion of cuts, to enable passage without Democratic votes. Meanwhile, a deeper problem lurked in the form of the IRS’s indifference or inability to enforce the existing law. In 2010 alone, 47 percent of alimony recipients failed to report any or all of alimony received, resulting in $2.3 billion of losses to federal coffers, according to a 2014 report of the Treasury Inspector General for Tax Administration.

So, we can see that the Trump Administration has incentive, especially in an election year during which the deficit is rising faster than projected, to interpret the alimony repeal in a way that maximizes revenues to offset some of TCJA’s corporate and high-income tax cuts. One contribution that Treasury can make is to promulgate regulations that interpret, or re-interpret, the “incident to” language that Jon cites, by limiting the alimony deduction to those taxpayers whose divorce instruments have actually been made a part of a divorce decree in 2018.

In Massachusetts, that would require the parties to step back from the Probate and Family court bench, with an approved and incorporated agreement, before the close of business on New Year’s Eve if a judgment nisi would suffice. Even worse, if the IRS requires a final divorce judgment (as it does in determining tax return filing status), the parties would need be in court before the end of August or September, given the post-hearing waiting periods of M.G.L., ch. 208, §§ 1, 1A and 1B.

As a divorce mediator, whose job includes providing enough information to assure both parties’ informed consent to divorce settlements, I cannot, despite Jon’s assurances, provide them myself. Rather, I feel obliged to explain the possibilities, even if remote, so that clients do not wake up on January 2d, or April 15th, and learn that some regulation sleight of hand has denied them the benefit of the alimony bargain that they made. It isn’t clear; and it is most surely not easy. But who among us can predict any act the current federal regime – especially with mid-terms looming?

So, what to do in mid-2018? For the dwindling cases that can realistically expect to appear for uncontested divorce hearings in August (§1A) or September (§1B), the question is academic. For the other couples who will be mediating during the balance of this year, I will be raising the issue, and asking them to consider the two-tiered approach of agreeing on an alimony regime that covers both deductibility outcomes; and trust them to make the appropriate decision, for them, in consultation with counsel.

With our alimony statute remaining as written, and 2019 agreements surely precluded from the alimony deduction, we are all going to have to struggle to create equivalencies for taxable and non-taxable spousal support, anyway. There are smart people among us who are studying fast and hard to create mechanical ways of doing that for us, as in, “for income levels of $X, the after-tax equivalent of 32.5% of gross income, fairly balancing the net payor cost versus net payee value gap, is $Y.” Another approach is to prepare case-by-case “old law” and “new law” cash flow analyses, and try, as closely as possible, to translate the net-after-tax shares for the parties with deductibility assumed, to the newer scenario, e.g., if deductibility would result in a 60%-40% sharing of net-after tax income, and then solve to that end result with non-deductible alimony assumed.

The specific approach taken is less important than that we all be aware of the challenge itself, and that we grapple with it in the cause of advancing the parties’ informed consent.

 

Just What is a “New Legal Consequence”?

Wednesday, June 07, 2017

Not a Shifting Alimony Presumption, under Van Ardsdale v. Van Ardsdale

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The crux of the Massachusetts Supreme Judicial Court’s (SJC) recent Van Ardsdale v. Van Ardsdale, is that the retroactive effect of durational limits under the Alimony Reform Act (eff. 3.1.12) (ARA) is constitutional because the imposition of these constraints is “merely” presumptive and, therefore, do not “attach new legal consequences to events completed before its enactment”.

We do not question precedent. While its comparison of a sex offender’s right to contest registration requirement for adjudications that occurred before the registry legislation, in Doe, Sex Offender Registry Bd. 3839 v. Sex Offender Registry Bd., to alimony recipients’ right to seek deviation from the “presumed” durational limits is cringe-worthy, we get the analysis. Because the sex offender and the alimony payee both have some chance of eluding the impact of new legislation, the former by an appeal to the Board, and the latter by an “interests of justice” court deviation from alimony termination, the individual’s jeopardy is not foregone; therefore, it does not rise to the level of a “new legal consequence”.

Presumptions, the SJC reasons, are “simply rules of evidence”.

But, sometimes good legal analysis defies reality, or at least practicality.

Before ARA, the burden of proving changed circumstances to justify the termination of alimony sat squarely on the shoulders of the payor. Retirement? Just one circumstance to consider. Income loss? Well, maybe, but just how did that happen, anyway. Cohabitation of the recipient? Forget about it.

Now, the burden falls just as squarely the recipient, as the secondary holding Van Ardsdale, and the same day’s Popp v. Popp, demonstrate. It is a small sample to be sure, but the appellate scoreboard on reported cases for alimony payees seeking to extend alimony beyond “presumed” time limits is 0-2. In many cases, the answer will be the same for recipients as it used to be for obligors whose alimony check supported the household of not only the ex- spouse, but a new “friend” as well.

We are not at all criticizing that this burden shift has occurred. That is a policy question, and one properly reserved to the legislature. The old alimony system was, in many respects, out of control.

But, calling a major burden shift as a mere rule of evidence trivializes a very real and substantive change in our statutory law. And, it denies the everyday experience of litigants and their counsel, many of whom will not sue for alimony extensions, because presumptions are meant to be hard to overcome. And, expensive. And, risky.

 

Massachusetts Alimony: Watching the Pot - Part 1

Wednesday, April 10, 2013

The number one preoccupation among Massachusetts divorce lawyers this year is trying to figure out how the appellate courts will construe many of the complex and interactive features of the year old comprehensive alimony “reform” statute. They hope that once this appellate pot boils, “guidance” will flow that will, in turn, give lawyers some sounder basis for predicting how trial judges’ discretion will be bounded and exercised in the future.

There are many uncertainties in the statutes, such as:

  1. How should judges apply their deviation authority to avoid alimony termination when very long marriages bump up against payors’ retirement age in an economic environment where people are working long past “retirement age”?
  2. Where judges perceive that new alimony cut-offs are unfair, how freely should they approach unequal property allocations as a form of compensation?
  3. Should judges “count” the time of temporary alimony orders towards calculated durational limits?
  4. Are judges expected to calculate alimony or child support first?

Will the cases come down in a trickle or a rush? Will the Supreme Judicial Court pre-empt the Appeals Court? Will the decisions be narrowly crafted, allowing for slow and thoughtful development; or will we see broader and a more rambling style of statutory construction? Will the “unreported”, or so-called “128” decisions of the Appeals Court have any coherence at all?

This important and fraught process will only start this year. Will it help or hurt? In our next two blog entries, we will think about this from two perspectives: that of a divorce mediator, and as a divorce arbitrator.


 

Divorcing Parties Playing Against Type - Don’t Do It

Wednesday, April 04, 2012

Recently, we spent a Sunday evening at a new Easthampton, MA business: a “free movie” venue called “Popcorn Noir”. This creative venture offers gourmet popcorn, snacks, dinner, hot cider; and intimate seating for 20 or so lucky viewers. Members pay a modest annual fee to have access to this storefront treasure with vintage films.

We watched the Billy Wilder-directed Fred McMurray and Barbara Stanwyck classic “Double Indemnity”, from 1944. A film student introduced the show with the comment that one thing that made this noir piece so effective was that every actor played “against type”. For those of us who grew up with McMurray on “My Three Sons” (most of us) knew exactly what she meant. She also described the coming feature as a tale of three people enmeshed in a spiral of events of mutual destruction, leaving them all dead.

This all got me thinking (after the show) about divorce mediation! Divorce lawyers like to tell prospective clients that criminal lawyers see bad people on their best behavior while family law clients are “good people at their worst”. This cliché is largely geared towards providing cover to the upset spouse for out-of-control feelings and decisions, but there is also truth to this stereotype. Many people react to the crucible of stress, worry and fear of impending divorce in ways that lead them to make quick decisions that yield far-reaching and long-term effects on families, sometimes quite negative. As friends and family urge the spouses to “protect” themselves (and their children) from each other, they are often inclined to accept the most aggressive lawyers and advice, and the most assertive processes that they can find..

Sometimes this advice is absolutely on the mark, and there is no good choice but to lawyer up and get to court. But, too often, this just sets a tone of heightened confrontation, crushing costs and lost years of litigation, when calm reflection and facilitated discussion might serve the family more effectively, leaving people in a place where their ability to cooperate is less damaged and sometimes even enhanced. There is a reason that the Massachusetts Supreme Judicial Court requires lawyers to discuss alternative dispute resolution options with clients before filing suit,. But we suspect that this rule is honored far more in the breach that in its careful and enthusiastic observance, as many lawyers perceive litigation as the “only way” to go.

Good people in crisis should not play against type. Beginning divorce with an arms race when unnecessary consigns the family to a spiral of controversy and financial calamity, when reflection and facilitated negotiation are likely to be less expensive, less antagonistic and more constructive than the alternative. Divorce does not have to be all noir. It can be seen as a transition: to be managed and experienced as an honest, direct and personalized process in which people “play” themselves, and not the mythical “worst behavior” caricature.

Mediation is not for everyone. But, almost everyone should at least consider it – seriously.

 



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