NUTS AND BOLTS OF SUPPORT/
MAINTENANCE TAX LAW

By: Gunnar J. Gitlin
The Gitlin Law Firm, Woodstock, Illinois
© 2008

L awyers who handle divorce cases must know the applicable tax law - especially those regarding child support and maintenance. Divorce lawyers often refer clients to a tax professional such as an accountant or a tax lawyer. A California appellate court has held, however, that this may not enough to avert liability for malpractice. For example, the tax professional may provide the wrong advice, or the client may never obtain the recommended advice. In either of these circumstances, the California appellate court held that the lawyer could be sued for malpractice. Moreover, a knowledge of divorce tax law will allow you to help the parties save money through creative drafting through the use of unallocated maintenance awards, and understanding when there is little or no value to such things as an award of the dependency exemptions. I have found that in the average divorce case the knowledge of the basics of tax law can often save your clients thousands of dollars per year.

I.Federal Tax Considerations in Divorce Proceedings:

A.Maintenance/Alimony:

Maintenance/alimony is ordinary income to the recipient. See Section 71 of the Internal Revenue Code (the "Code"). The payor may deduct maintenance from income under §215. The maintenance deduction is "above the line". What this means is that maintenance is deductible even if the payor does not itemize deductions. Child support, on the other hand, is not deductible by the payor.

Under prior law, maintenance, to be deductible, had to be a form of periodic payment and had to discharge the state law duty of support.

In the 1980's, Congress overhauled the Internal Revenue Code as it relates to taxation of maintenance. The basic principle - that the payor may deduct and the recipient must include the payments as income -- is still good law. The Tax Reform Act of 1984 (TRA 84) and of 1986 (TRA 86) created several hoops that the matrimonial lawyer must jump through so that the payment will be considered alimony. The treatise that every lawyer who handles family law cases should have on the bookshelf is Frumkes on Divorce Taxation, Third Edition. Call 800-440-4780 or http://www.jamespublishing.com/books/dtax.htm

Divorce taxation presents a host of practical ways that you can help your clients in divorce cases. Why learn the basic rules regarding deductibility of maintenance? By doing so, we will learn practical divorce tax issues including:

1.What occurs when the husband is ordered to pay the mortgage on the jointly owned residence? Can there be a maintenance deduction?

2.What about the payment of other expenses such as food, or payment of the utilities? Are these considered as tax deductible maintenance even if not specified in a temporary order?

3.What if I want to provide for lump-sum property settlement, that is, a non-modifiable stream of payments paid for a certain period? Will just calling this a property settlement ensure that the recipient pays no taxes on the funds received?

4.Is it necessary that there be a court order for temporary maintenance to be deductible? What if there is an exchange of letters which clearly states the agreement to pay for maintenance? These letters would not be legally enforceable. Are the payments deductible maintenance?

5.Can you pay tax deductible maintenance in a lump-sum amount as a temporary order to pay for such items as attorney's fees?

6.Do the spouses have to live in separate households to obtain a deduction for temporary maintenance?

For ease of reference, Frumkes use the pneumonic device of referring to the basic rules as “the 7 D's.” They are:

1.Dollars - Cash received by or on behalf of a spouse

2.Documents - Received under a divorce of separation instrument

3.Designation - The payments must not be designated as includible in gross income under §71 and not allowable as a deduction under § 215. (I think of this as the “private ordering” exception).

4.Different Households (Distance) - If there is a divorce (or legal separation) decree, the parties must not be members of the same household when the payments are made.

5.Death - The payments must cease on the death of the recipient.

6.Dependents - The payments must not be fixed as child support.

7.Dumping - The maintenance payments cannot be front-loaded in excess of the permissible amounts or there will be recomputation in the third post-separation year.

1.Dollars

·Payments Must be in Cash from One Spouse to the Other:

No deduction is allowed for a payment in services or property other than cash. For example, no deduction is allowed for a transfer in the form of a debt instrument. However, this does not totally eliminate the provision of economic benefits to a spouse as qualifying maintenance payments.

·Payments for the Benefit of the Recipient Spouse May be Maintenance:

Examples are rent, mortgage, tax, and tuition payments. As long as the benefit provided is readily and clearly calculable in dollars and are required by the agreement, this should qualify as maintenance. See A-6 of “Temporary Regulations” 1.71 IT. The exception here is that payments to maintain property owned by the payor spouse and used by the recipient spouse (such as mortgage payments, real estate tax payments and insurance premiums) are not payments made on behalf of a spouse.

·Payment of Mortgage on Jointly Owned Residence:

The more common scenario is one in which the payor is required to pay installments on the mortgage encumbering the marital residence which is jointly owned by the parties. The payor can deduct only half as a payment to a third party benefiting the payee who owns half the property. The payor, however, can deduct interest assuming the residence is his principal residence (or qualifying second residence under IRS § 163.)

·Temporary Payments that Benefit The Recipient:

At temporary support hearings, courts will often award a specific cash amount for food, clothing and other cash requirements. Such orders will often provide that the payor must continue to make payments for other expenses of running a household such as payment of rent, utilities, and local phone expenses. This may qualify as cash payments of alimony or separate maintenance. This is one reason it is critically important to be aware of how such temporary orders are negotiated - in terms of the language to be included in the order or agreement. Assume a payment for the utilities, but the husband's name is on the statements. If the payments benefit the other spouse and are made under a divorce or separation instrument (usually a temporary order), the payments will be deductible maintenance.

2.Documents - Payments Must Be Made under a Divorce or Separation Instrument:

This includes a written separation agreement, a temporary order for support, a Judgment of Dissolution of Marriage or a legal separation judgment. Retroactive instruments are not allowed.

The term “written separation agreement” is not defined in the Code. An interesting tax and illustrative court case is Benham v. Commissioner, T.C. Memo 2000-165. For a good discussion of this topic see http://finance.pro2net.com/x23900.xml The husband paid $2000 per month to the wife under a temporary agreement. During this time period, the parties lived together in the marital residence while they were trying to reconcile. The I.R.S. disallowed the deduction, but the tax court ruled that the parties did not need to separate to have a qualifying written separation agreement. The Tax Court stated:

A written separation agreement is a clear, written statement of the terms of support for separated parties. It must be a writing that constitutes an agreement. An agreement requires mutual assent or a meeting of the mind. But a written agreement does not have to be legally enforceable. It is sufficient that it was entered “in contemplation of a separation status” and includes a statement of the terms of support.

A divorce or separation agreement includes a typical letter agreement meant to cover only "temporary support." In one tax court case, the court determined that a letter from the husband's attorney to the wife constituted a written separation agreement and that the payments made were deductible alimony. A payment made by one spouse to another by way of an informal arrangement or oral agreement does not qualify. The best practice is to enter a temporary order of support which is not characterized as a divorce or separation agreement because of recapture rules. (See below for the recapture rule).

A court order for temporary maintenance may order a single lump sum to be paid and the order may reserve the right to order future lump-sum maintenance payments. These payments are deductible as maintenance and may include moving expenses and legal fees.

3.Designation - “The Private Ordering” Provision:

Payments are deductible unless they are designated in the divorce or separation instrument as not taxable/deductible.

In Goldman v. Commissioner, 112 TRIAL COURT No. 21 (1999), affirmed in Shutter v. Commissioner, 242 F.3d 390 (10^th Cir. 2000), the tax court held that the following language of a marital settlement agreement was a clear, explicit and express direction that the payments are not be included in the wife's income:

The parties intend and agree that all payments of property as provided herein [periodic payments of $20,000 per month for 240 months] are subject to the provisions of Section 1041...and they shall be accounted for and reported on his or her respective individual tax returns in such a manner that no gain or loss shall be recognized as a result of the division and transfer of property as provided for herein. Each party shall file his or her Federal and State tax returns, and report his or her income and losses thereon, consistent with the foregoing intent of reporting the division and transfer of property as a nontaxable event.

The reason that there may have even been an issue in this case is that it did not use the preferred approach of mentioning Sections 71 and 215 of the Code (re deductions for maintenance and including maintenance as income). The Goldman court stated that, “we believe the divorce or separation instrument need not mimic the statutory language of the subparagraph. Rather, in our opinion, the divorce or separation instrument contains nonalimony designation [private ordering] if the substance of such a designation is reflected in the instrument.” Frumkes comments:

Because the Goldman court dwelled on the distinction between the division of assets and spousal support, if a stream of payments is for property and meets all other criteria of I.R.C. § 71, and is intended by the parties to, in fact, be taxable to the payee and deductible to the payor, it will be helpful to insert language expressing exactly what is meant and to state that the parties did not in any way intend that such stream of payments is designated as not taxable and not deductible.

Perhaps more interesting, in terms of raising a warning flag, is the case of Baker v. Commissioner, T.C. memo 2000-65. In the MSA the parties agreed that the payments were for a property settlement, but payments were found to be alimony. The agreement provided under the property settlement heading that the husband was to pay to the wife 50% of his monthly gross military retirement pay each month “as a property settlement until such time as she remarries or cohabits with another person or until her death.” The tax court stated that the labeling of the payments as a property settlement with nothing more was not a “clear, explicit and express direction that the payments are not includible in the wife's gross income and not deductible by the husband. The key quote that serves as a warning to sloppy drafting states:

If the payments fit within the definition of alimony for federal income tax purposes, the intended purposes of the payments is of no consequence. Thus, we find that the parties' intent in this case, except as reflected in the divorce or separation instrument itself is moot... The instrument must contain a clear, explicit and express direction that the payments are not to be treated as income.

Note that the parties can provide for private ordering in a temporary support order.

4.Distance / Difference Households - The Parties Must Live in Separate Residences:

Parties must reside in separate "households" after the entry of the final decree. The test is whether the spouses are still living under the same "roof".

This is not applicable in two circumstances:

a.If spouses prepare to separate and actually do so within 1 month of payment in question.

b.Orders for temporary maintenance.

5.Death - Payments Must Terminate upon Payee's Death:

It is not necessary in Illinois to state in the Marital Settlement Agreement that the payments terminate upon death because the Illinois law provides maintenance is automatically terminable upon death. (See Section 504 of the Illinois Marriage and Dissolution of Marriage Act). If there is a provision for maintenance in gross (lump-sum maintenance payments which are intended to be deductible), the provision should read that it terminates on the death of the recipient. A 1999 tax court decision discussed payment of tuition as a type of maintenance payments. An express termination on death provision was not required because of the nature of the payments - they were dependent upon the recipient attending school. Keep in mind that the termination on death requirement affects all payments. If the payments do not terminate on death, then none of the payments are deductible.

This brings up a related matter in Marital Settlement Agreements. Case law has held that where a Marital Settlement Agreement states that the payments are terminable upon death or wife's remarriage, this does not include conjugal cohabitation.

6.Dependents - Contingencies Related to a Child:

The payments may not be fixed as child support. IRC, §71(c). Payments will be treated as child support if a reduction in maintenance payment is made upon the happening of a contingency related to a child, such as the child attaining a specified age, marrying, dying or leaving school or a reduction is made "at a time which can clearly be associated with a contingency related to a child. According to the "temporary" regulations, payments are presumed to be reduced at times clearly associated with a contingency related to a child in two situations. In any other situation, a reduction would be conclusively treated as not clearly associated with a child. Temp. Reg. §1.71-1T(c), Q-18. To be considered as maintenance, the payments must meet two tests:

a.Single Reduction Test: Payments are not to be reduced not more than six months before or after the date the child is to attain the age of 18, 21 or the local age of majority.

b.Multiple Reduction Test: Payments are not to be reduced on two or more occasions which occur not more than one year before or after a different child of the payor spouse attains a certain age between the ages of 18 and 24, inclusive - and is the same age for each child. Temp. Reg. §1.71-1T(c), Q-18.

Frumkes' treatise addresses two recent tax court cases in which maintenance terminated within the six month period. In each of these cases, maintenance treatment was upheld. Nevertheless, be careful in any case where you have a termination date for maintenance at a time six months before or after a child turns 18 years of age. He also gives a series of tips to try to ensure deductibility. His rules are:

1.In negotiations of the length of payment, never mention the child's age.

2.Don't even discuss the children - especially their ages.

3.Keep all negotiation notes, letters and drafts of agreements.

4.Set forth what was intended by the parties as to taxation of payments.

5.Set forth the reasons for the time chosen for the termination of maintenance.

Unallocated Maintenance: To understand how to save income taxes for your clients and to draft an unallocated maintenance award, it is critical to understand the above fixing rules. For an example of the tax impact of an unallocated maintenance award assuming the following:

Exhibit H1 shows a Summary Report for these two scenarios.

    Q:Is it possible to provide in an unallocated maintenance award that spousal support will be reduced by any court ordered increase in child support?

    A:At least for tax purposes, the payments will not be considered fixed as to child support for this reason. See Heller v. Commissioner, 1994-423.

7.Dumping - The Three Year Recapture Rule:

TRA 84 complicated the taxation of maintenance payments by providing for a 6 year minimum term rule and a six year recapture rule. The current three year recapture rule is more simple.

Recomputation takes place at the end of the third post-separation year. Temporary support payments are not included. The recomputation results in the amount being added back to the income of the payor at the end of the third post-separation year with a windfall to the recipient because the amount would be subtracted from her income.

Maintenance provisions should be drafted to avoid the impact of these recomputation rules. There are two ways to avoid recapture:

One way of doing so is to start payments at the end of the first calendar year because the recomputation rules apply only on a post-separation year. Thus, the initial year's payments can be higher and level off over the remaining two calendar years. For example it is permissible to make payments as follows:

Second, payments may decline by $15,000 or less in each of the 3 years without recomputation (safe harbor amount).

It is important to note that if maintenance is terminated before the end of the 3 year period, there may be an unforeseen recapture. In such a case it is best to state that maintenance is non-modifiable. If maintenance is modifiable, the lawyer should consider a recomputation clause where maintenance is over $15,000 per year.

The 3 year recapture provision revives the use of short term alimony and makes it possible to front-end-load within reason. Front end loading is generally referred to as a method to allocate property as short term maintenance with the attending tax benefits.

•Joint Income Tax Returns:

The key exception to the above rules regarding deductibility of maintenance payments is that if the parties file a joint income tax return, there can be no application of Section 71 of the code. If you represent the less monied spouse, you can argue in favor of “private ordering” of maintenance by urging that the parties will likely save money by a joint filing and that you do not want to provide an incentive for a party to “dissipate” assets by failing to submit joint tax returns.

II. Child Support:

Child support is not deductible to the payor nor taxable to the recipient. Child support is defined as a payment which is fixed in the instrument as support for a child of the payor spouse. It is possible to draft an unallocated maintenance provision if the reduction is outside of 6 months before or after the child turns 18 or 21. However, such unallocated provisions must be carefully drafted.

A.Dependency Exemptions:

The current amount for each dependent exemptions is $3,500 [for 2008.]  The dependency exemption is phased out at the upper income brackets. In 2008 the phase out begins and ends: 

Filing Status	AGI Phase Out Begins	Phase Out Ends
Single	$159,950	$282,450
Head of Household	$199,950	$322,450
Married Joint	$239,950	$362,450

The key figure to understand is when the phase out begins for a single taxpayer.  The value of exemption depends on the tax bracket:

The result of the reversal of the phase outs is that for high income individuals there is a greater advantage to the award of the dependency exemption.  In the chart we are comparing apples and oranges, somewhat because the phase out is based upon the adjusted gross income, not the taxable income as in the tax tables.

The general rule under the Code is the custodian of the children is entitled to take the children as dependent exemptions. However, if the custodian agrees that the non-custodial parent may take the children as exemptions and agrees to sign an Internal Revenue form (Form 8332) so stating, the non-custodial parent is entitled to claim the children.

The agreement or Judgment of Dissolution of Marriage should specify that the parties shall execute such I.R.S. forms as are required to effect the allocation of the dependency exemptions.  For good basic articles on the issue of the allocation of the children as dependent exemptions:  See:  Kiplinger.com Article:  Divorce and Dependents: Who Claims the Kids? March 5, 2007.

Dependency Exemption in Parentage Cases:  Does the same law that apply to divorce cases also apply to paternity cases?  In King v. Commissioner, 121 T.C. No. 12 (2003), the tax court held that the special support test under I.R.C. § 152(e)(i) can apply to parents who have never married each other. It noted that:

Section 152(e)(1) provides that the special support test applies to "parents" in three different situations. The statute specifically provides that the test applies not only to divorced and certain separated parents, but to parents "who live apart at all times during the last 6 months of the calendar year." There is no requirement in the statute that parents have married each other before the special support test can apply. Section 152(e)(1) applies to any parents, regardless of marital status, as long as they lived apart at all times for at least the last 6 months of the calendar year.

Understand that Tax Court Memorandum opinions ordinarily are limited to the case and although readily cited are supposed to have no value as precedent.  Regarding this issue, track the proposed regulations.  See:  http://pub.bna.com/fl/14985603.pdf (May 2, 2007).

B.Under Age 17 Child Tax Credit:

Section 24 of the Internal Revenue Code (IRC) now provides that the maximum amount is $1,000 for each qualifying child under the age of 17.  This credit has been extended until 2010.  A qualifying child is a child whom the taxpayer can claim as a dependency exemption. To claim the credit the taxpayer must include the taxpayer identification number of each qualifying child.  For further information see:  http://www.irs.gov/publications/p17/ch34.html

A "phase out" provision reduces the available credit as the taxpayer's "modified" adjusted gross income (generally the modified AGI is the same as the AGI) increases above $110,000 for married taxpayers filing joint tax returns; $75,000 for taxpayers filing as individuals or heads of household. The phase out is $50 for each $1,000 of adjusted gross income in excess of the threshold amount.

The decision of the court in allocating the children as a dependent exemption becomes more complicated with the under age 17 child tax credit due to the lower phase out provisions. It will make sense to definitely award the exemption to the non-custodian when:

- Custodial parent makes less than $20,000 and cannot fully use the child tax credit and non-custodian is in a higher tax bracket;

- Custodial parent is in 15% tax bracket (she earns more than $20,000 but less than $45,000) and non-custodial parent has an AGI of less than $75,000 (except if remarried)

- As general rule, the non-custodial parent should be in the higher tax bracket but also have an AGI of less than $75,000.

Example: Custodial parent is in 15% bracket but the non-custodial parent has an AGI of $110,000.

There is a provision for a refundable credit for families with three or more children under age 17.

C.Child Care Credit:

Next is a credit called “Credit for Child and Dependent Care Expenses.” You will find this credit on line 44 of the tax returns and is calculated on form 2441. For further information, see the IRS's web site.  This credit is non-refundable. The maximum child care credit is based on $3,000 of child care expenses for one child under age 13 and $6,000 of child care expenses for 2 or more children under age 13.

What is the actual value of the credit? See the following chart which shows the value of the child care credit.  The maximum value is if income is between $0 and $15,000 and then a 35% rate applies.  This is reduced to a 20% rate when the income is over $43,000. 

The maximum value of the child care credit is:

To claim the credit the person must be the custodial parent. Therefore, I have seen a number of marital settlement agreements which mistakenly provide that the parties will equally divide the ability to claim the child care credit (since they are equally dividing the expenses.) The provisions in such agreements regarding the child care credit are nullity.

D.Educational Tax Credits:

There are two educational tax credits benefits that also rely on the dependency exemptions: the Hope Credit and the Lifetime Learning Credit. The critical issue to remember is that regardless of who pays for the tuition (whether it is paid by the student or either parent), the credit goes to the person claiming the dependency exemption. This benefit is phased out at $50,000 of income for a single person or head of household or $100,000 for a joint return.

The Hope Credit is good for a credit of up to $1,500 per student based upon qualifying expenses for the first two years of post-high school education. The Lifetime Learning Credit is worth up to $1,000 for costs beyond the first two years on a per family basis. Generally, some portion of the first $5,000 of tuition expenses will apply for one credit or the other. The use of this credit is negated by the use of any tax free educational account funds.

From a tax planning perspective, for many high income families the credit is eliminated (phased out.) If the child has an income it may make sense for the child to take the exemption and eliminate his or her tax bill. However, be careful that this does not jeopardize health insurance coverage or financial aid eligibility which may require a parent to claim the exemption.

E.Importance of Allocation of Dependency Exemption:

I agree with the point that was made by Scott B. Frankin, C.P.A., J.D., in the Fall 2002 issue of the Family Advocate regarding the allocation of the dependency exemption. He stated:

To adequately negotiate the dependency exemption, first prepare an estimate of the anticipated tax savings and potential child-tax credits, dependent care expense credits and educational tax credits which might result from claiming the exemption. The parent with the greater dollar benefit in terms of overall tax savings should claim the exemption, especially to encourage child support payments. If negotiations are a challenge, consider splitting the value of the exemption between the benefiting parent and the paying parent for some fraction of the savings; in this case, both parents will likely be better off in the end.

F.Dennis Casty — Low Income Divorce - Why Bother with Taxes?

1.In a low income divorce (one party makes under $25,000 and there are children), the general impression is that taxes are not important. This impression is very wrong especially when taxes are compared to the total gross cash of the parties. If you think tax savings of $2,500 per year matter to low income divorcing parties, this part of the presentation is for you.

2.The Illinois guidelines are based on after-tax income of the support payer so accurate taxes will result in appropriate Illinois child support. When tax calculations are not representative of the actual tax situation at the time of divorce or temporary order, child support will be understated and the children are hurt. There are many situations in which the error is much greater than would normally be expected.

When taxes are “generally estimated” for a divorce (use a pay stub, apply Circular E tax tables to income etc), taxes will be higher resulting in decreased child support. Circular E uses slightly higher tax rates so the government uses our money and these simplified tax methodologies ignore tax credits. In a low income divorce, the various tax credits are very significant and must be computed correctly if the real after-tax situation of the parties is to be understood.

While taxes are important in computing child support, taxes are also very critical in allowing the client to understand the real economic consequences of support. Let's look first at what the divorcing individual needs to know to make an informed decision on the support aspect of a divorce.

3.What does the client want to know to make an informed decision on support and prepare for life after divorce?

Clients want to know how much REAL CASH they will have after divorce.

a.FinPlan calls this Cash to Meet Living Expenses.

(1)It is all gross income less all taxes including taxes on alimony plus or minus support - It is what the client can spend and thus is comparable to the budgets prepared in divorce cases.

b.Budgets (living costs) are based on after-tax figures.

c.You must compute taxes to answer client's questions on Real Cash.

d.In many cases, there is not enough cash to meet budget needs and clients should refocus on budgets and actual living costs - essential to give them after-tax figures so that they understand that Real Cash will be less than they thought and that they need to reassess their budgets.

e.If the “Real Cash” numbers are not presented to the divorcing individual, settlement of support issues can be difficult because the parties don't really understand how support numbers are going to impact their lives.

f.Essential to have a way to compute the REAL after-tax settlement numbers and compare this to budgets

g.Enter FinPlan's Divorce Planner ® - Tax software designed for lawyers to assist in quickly and accurately determining the after-tax impact of support. It accurately computes the taxes and Illinois guideline support and shows how much real cash each party will have from the settlement of support.

h.FinPlan software reports will be used today to illustrate the low income case. It is unfortunate and counter-intuitive, but the reality is that tax computations for the low income individual are more complicated than for many others. The reason various credits available to low income individuals are difficult to calculate is because some credits are refundable or partially refundable so these individuals can be receiving cash payments from the government even if they have a zero tax liability. Before the more recent changes to the Tax Code creating all of the credits, I could quickly and authoritatively use a spreadsheet to determine net income.

G.Steps to Use for Determining Net Income Using FinPlan's Divorce Planner® Software:

1.Cash Facts: Enter Case Facts

2.Reports Showing After Tax Cash of Both Parties and Tax Reports: Once the case facts are entered into computer, the program automatically prepares reports showing the after-tax cash of both parties and several reports on taxes:

Support Reports

1. After-Tax Cash including Support for current year (Annual numbers)

2. IL Guideline Child Support Forms for Sole and Split Custody

3. After-Tax Cash for two following years.

4. Reports for Mother only and Father only

Tax Reports

1. Federal Tax Calculation

2. Federal Tax Calculation two following years

3. Calculation of Social Security taxes: salary and self-employment taxes

4. Value of Child Dependency Exemption

5. Value of Under Age 17 Child Tax Credit

6. Refundable Under Age 17 Child Tax Credit

7. Calculation of federal Child Care Tax Credit

8. Calculation of federal Alternative Minimum Tax

9. Tax Calculation Excluding Alimony (used to determine the tax impact on each party from alimony)

One set of case facts is used for the computation of all support and tax reports. Taxes are not a mystery and all tax figures used in the support reports are backed-up with detailed tax calculations. There is no “generalizing” of taxes in FinPlan. All computations are completely accurate and user input to accomplish this accuracy is simple.

Phaseouts, refundable and nonrefundable credits, and real tax tables are incorporated and these all reflect 2002 tax rates. Never use the Circular E tax tables. They are never appropriate in divorce. Circular E is what the government withholds from paychecks and does not even apply to the Head of Household or Married, Separate filing status and does not reflect phaseouts or credits.

3.Using the Program:

A.Once case facts are entered, go to the Analysis Screen and look at the result for that set of input data. Save cases in the Support and/or Tax Summary reports where alternatives scenarios are displayed side-by-side. Go back to Analysis Screen and change variables to create other support and/or tax cases and then save in summary reports what you determine is appropriate.

B.FinPlan has been called the “CPA in the Box” because of the accuracy of the numbers and because the context sensitive HELP gives the user an on-screen tax primer on divorce. The user can access all the details on how the tax calculations work by calling up the HELP menu.

H.When to Switch Child Dependency Exemptions:

The difficulty is that there is not a simple rule when to use this technique because it depends on the relative incomes of the two parties and other tax variables. In general, it is worth a lot more when there are 2 or more children and when the custodial parent makes less than $20,000.  However, be careful about rules of thumb including this one. 

The Gitlin Law Firm provides the above information as a service to potential and current clients. A person's accessing the information contained in this web site, is not considered as retaining The Gitlin Law Firm for any case nor is it considered as providing legal advice. The Gitlin Law Firm cannot guarantee the outcome of any case.

The Gitlin Law Firm
Practice Limited to Family Law
663 East Calhoun Street
Woodstock, IL 60098
815/338-9401

www.gitlinlawfirm.com

© Copyright 2008, Gitlin Law Firm, P.C.

Update:  May 27, 2008