Paying for College – A Requirement Under the Child Support Standards Act?

Prior to the enactment of the Child Support Standards Act, contained in Family Court Act §413 and Domestic Relations Law §240, the courts had held that the provision of a college education to one’s minor children was not a necessary expense for which a parent could be obligated in the absence of a voluntary agreement or special circumstances. Haessly v. Haessly, 203 A.D.2d 700 (3d Dept. 1994). However, recent case law recognized that special circumstances, which involve the educational background of the parents, the child’s academic ability, and the parents’ financial ability to provide the necessary funds, continue to be relevant factors in applying the standard set forth by the Legislature in the Child Support Standards Act for determining whether an award for college expenses is appropriate.

It is clear that the Court has the power to order a parent to pay his child’s educational costs even though the parties’ settlement agreement is silent on that issue. Manocchio v. Manocchio, 16 A.D.3d 1126 (4th Dept. 2005); McDonald v. McDonald, 262 A.D.2d 1028 (4th Dept. 1999). As aptly noted in Mrowka v. Mrowka, 260 A.D.2d 613, 613 (2d Dept. 1999), “Although the parties’ stipulation of settlement was silent as to the costs of college, this does not necessarily mean that an agreement was reached pursuant to which college costs would not constitute a component of the parties’ obligation to pay child support.”

According to the Appellate Division, Fourth Department, Fruchter v. Fruchter, 288 A.D.2d 942, 943 (4th Dept. 2001), the Child Support Standards Act authorizes an award of educational expenses where warranted by the best interests of the children and as justice requires, upon a showing of “special circumstances”. Relevant factors include the educational background of the parents, the child’s scholastic ability, and the parents’ ability to provide the necessary funds. Id.

In Manocchio v. Manocchio, 16 A.D.3d 1126 (4th Dept. 2005), the Appellate Division, the Fourth Department, rejected the father’s contention that Family Court improperly denied his objection to an order requiring him to pay half of his daughter’s educational expenses. The Fourth Department held that the support magistrate properly determined that the petitioner-mother was unable to meet the child’s educational needs on the income and support that she was receiving, and that the respondent-father had the ability to pay support. Id.

Therefore, even if the parties have a separation agreement that is silent on the issue of paying for college, they may be directed to pay for their child’s college education by the court.

Non-Marital Property Is Not Subject to Distribution

I have previously written about relevant classification of property for equitable distribution purposes. Normally, the property is classified as either separate or marital, regardless of how the title is held. However, once in a while I have seen situations where property rights are claimed in a property which is titled in neither the husband’s or wife’s name.

In Mattioli v Mattioli,48 A.D.3d 1143 (4th Dept. 2008) the Appellate Division held that Supreme Court properly refused to treat the former marital residence, which was titled in the names of plaintiff’s parents or in one of their names, as marital property subject to equitable distribution, despite the fact that plaintiff paid her father $42,899 during the marriage as a down payment towards its purchase. The Appellate Division held that the trial court erred, however, in basing its decision solely on the fact that title to the property was held by one or both of plaintiff’s parents, rather than by plaintiff and/or defendant. That fact was not necessarily dispositive because Domestic Relations Law 236(B)(1)(c) defines marital property as “all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held.” Thus, the dispositive issue was whether plaintiff and/or defendant held “any valuable property rights” in the former marital residence, inasmuch as property is “not marital property [where] neither the wife nor the husband [holds] any valuable property rights” in it. While the parties in this case alluded to an agreement between plaintiff, defendant, and plaintiff’s parents for the purchase of the former marital residence, no written agreement for the purchase and sale thereof was presented to the court. In the absence of a written contract, there was no evidence before the court that either plaintiff or defendant held the requisite “valuable property rights” in the former marital residence to render it marital property.

The Appellate Division held that the trial court erred in applying the doctrine of judicial estoppel in precluding defendant from presenting evidence of funds received by plaintiff from the sale of the former marital residence. Defendant attempted to establish that the $8,000 to $9,000 received by plaintiff from the sale of the former marital residence was marital property in the form of appreciation in the value of the property resulting from improvements he made to it during the marriage. The Supreme Court erred in relying on its decision when it applied the doctrine of judicial estoppel to the former marital residence. The record established that during the marriage defendant twice filed for bankruptcy under chapter 7 of the Bankruptcy Code and received discharges, and that he claimed in both bankruptcies that he was single and did not list the former marital residence as an asset in his bankruptcy schedules. The court thus determined that judicial estoppel prevented defendant from claiming any interest in funds received upon the sale of the former marital residence. Because marital property rights are determined upon the granting of a divorce, and defendant was not required to list possible future rights to marital property in the bankruptcy schedules. The Appellate Division modified the judgment by remitting the matter to Supreme Court to reopen the proof at trial to permit defendant to submit evidence that the funds received by plaintiff from the sale of the former marital residence were marital property.

The lesson of Mattioli is a simple one. If you are entering into any kind of agreement that may involve property to which you may have to establish a right to, make sure that the agreement is in writing.

Opt-Out Agreements and the Scope of the Child Support Standards Act

If parties choose to deviate from the provisions of the Child Support Standards Act with respect to the child support paid, such deviation will be upheld by the court provided the parties complied with such formalities as including calculations of the presumptive child support amount and the reasons for deviating from the CSSA. However, the parties frequently choose not only to deviate from the child support amount calculations, and add-ons such as child care and health care costs, but also to make recalculations of child support an annual or semi-annual event, or to include other items not included within the scope of the CSSA.

In Fasano v. Fasano, 43 A.D.3d 988 (2nd Dept. 2007), the parties included an annual cost-of-living-adjustment (“COLA”), with respect to the child support paid by the non-custodial parent. The Second Department found that the parties to the agreement did not opt out of the CSSA standards with respect to basic child support, but that the COLA provision included in the agreement represented potential future deviations from the CSSA basic child support obligation. The agreement did not state the reasons for including the COLA provisions. The Appellate Division held that the COLA provision represented an opt-out from the CSSA and was directly related to the child support. Since the reasons for including the COLA provision were not included in the agreement, the opt-out was invalid. The court vacated the COLA provision, while the basic child support provision of the agreement was not vacated.

However, not all provisions dealing with financial support of the children are considered to be within the scope of the CSSA. In Cimons v. Cimons, 53 A.D.3d 125 (2nd Dept. 2008), the Second Department held that the obligation to provide for the future college expenses of the children was not part of the parties’ basic child support obligation and therefore was not subject to the CSSA requirement that any deviation from statutorily-mandated child support obligations must be recited and explained in a stipulation of settlement. While the parties’ agreement regarding basic child support violated the CSSA by failing to recite and explain the reasons for the deviation, the provision concerning future college expenses was enforceable. The court held that unlike the basic obligation to provide child support, payment for a child’s college education is not mandatory. Absent a voluntary agreement, a parent might be required to provide support for his or her child’s attendance at college, but the determination of that obligation is dependent upon the exercise of the court’s discretion in accordance with Domestic Relations Law §240(1- b)(c)(7). The court further noted that the determination as to which additional aspects, if any, of the parties’ stipulation must be vacated along with the basic child support provision depends on the circumstances of the particular case and the nature of the obligations addressed in the other provisions of a stipulation. Some provisions may be so directly connected or intertwined with the basic child support obligation that they necessarily must be recalculated along with the basic support obligation. It found that unlike child care expenses and unreimbursed health care expenses, education expenses were not directly connected to the basic child support calculation and did not require the appropriate opt-out language.

The above cases represent the dangers involved any time the parties attempt to either opt-out from the CSSA or attempt to include items outside of the scope of the CSSA in their agreement. Any such agreement must be carefully drafted to make sure that it is not subsequently challenged and invalidated.

Tax Issues in Custody and Divorce

As we come to the end of the year, I am often asked about different tax issues applicable to my clients’ situations.

If my client’s divorce will not become final before the end of the year, the parties can still file a joint tax return. Once the judgment of divorce has been filed, an ex-spouse can file the return as a head of household, if he or she has paid for over half the maintenance of the household, and has a dependent living at his or her home for over half the year.

When the parties are divorced, only one of them can claim the $3,500 child dependency exemption on their tax returns for 2008. The parent claiming the dependency exemption is also allowed a $1,000-per-child tax credit for children younger than 17, as long as his or her income is not above the following cut-offs. For a married couple filing jointly, it is $110,000, for a married couple filing separately, it is $55,000 per spouse, and for all others, it is $75,000. If the applicable income exceeds the above thresholds, the amount of the child tax credit is reduced proportionately.

Usually, it is the person named as the custodial parent in the child custody portion of the divorce decree that is allowed to claim the child as a dependent. If the divorce decree does not name a custodial parent, then the parent with whom the child has lived with the longest throughout the year is the custodial parent.

A non-custodial parent, however, can claim the child dependency exemption, as long as the custodial parent signs a waiver promising not to claim the exemption. This is typically accomplished by the use of IRS Form 8332. However, the recent amendments of the IRS regulations dealing with this issue have complicated this issue. The final regulations provide that a release not on a Form 8332 must be a document executed for the sole purpose of releasing the claim. A court order or decree or a separation agreement cannot serve as the written declaration. If a release of a claim to a child is for more than one year, the noncustodial parent must attach a copy of the written declaration to the parent’s return for the first tax year for which the release is effective. Copies must also be attached to returns for later years. Under the final regulations, a custodial parent who released the right to claim a child, can revoke the release for future tax years by providing written notice of the revocation to the other parent. The final regulations require that the parent revoking the release notify, or make reasonable attempts to notify, in writing, the other parent of the revocation. What is a reasonable attempt is determined under the facts and circumstances, but mailing a copy of the written revocation to the noncustodial parent at the last known address or at an address reasonably calculated to ensure receipt satisfies this requirement. A revocation can be made on Form 8332, or successor form designated by IRS. A revocation not on the designated form must conform to the substance of the form, and be in a document executed for the sole purpose of revoking a release. A taxpayer revoking a release may attach a copy rather than an original to the taxpayer’s return for the first tax year the revocation is effective, as well as for later years.

Yet another related issue is who can claim the child as dependent under the group health plan coverage and health savings account (“HSA”) distributions. Under the final regulations, for purposes of group health plan coverage and health savings account (HSA) distributions, both parents can claim the child as a dependent if: (1) the child qualifies as a dependent of one of the parents; (2) the parents (both parents together) provide more than ½ of the child’s support for the calendar year; (3) the child is in the custody of one or both parents for more than ½ of the calendar year; and
(4) the parents are divorced, legally separated under a decree of separate maintenance, separated under a written separation agreement, or live apart at all times during the last six (6) months of the calendar year.

If a non-custodial parent claims the child exemption first, and without the custodial parent’s permission, he or she is likely to receive the exemption temporarily. However, once the custodial parent files his or her tax return including the exemption, and IRS notices that a child’s social security number has been included on two different tax returns, then both parties would be notified by IRS that only one party is entitled to the exemption, and the tie-breaker rule would be used to resolve this situation. This rule says that if two parents claim that a child as a dependent, the parent with whom that the child lived with the longest during the year, receives the exemption. If the child had spent the same amount of time with both parents, then the parent that had the higher adjusted gross income would get the exemption. The parent who was not entitled to the exemption would have to repay the tax, plus penalties and interest.

Regardless of who the custodial parent is, if the non-custodial parent pays for any of the child’s medical bills, these costs can be a deduction, subject to appropriate income limits. Child-care credit for work-related expenses can be claimed for children younger than 13.

The spouse who pays maintenance or spousal support can also receive a tax deduction for these payments, even if they aren’t itemized—as long as the payment amounts are stated in the divorce agreement or the judgment of divorce, and actually paid. The spouse who receives maintenance must pay taxes on it. For child support, however, there is no deduction for paying it and no taxes are paid by the parent receiving it. Assets transferred from one spouse to another during a divorce are not generally taxed.

Please note that the above discussion is not a tax advice and these issues should be discussed with your tax professional.

Bankruptcy and Divorce

When your ex-spouse files for bankruptcy, all efforts to collect any debts have to stop unless they fit within one of the exceptions in the bankruptcy statute. This is known as the “automatic stay.” One exception to the automatic stay is the one that allows the commencement or continuation of a proceeding to establish or modify a support award or collect support from property that is not property of the bankruptcy estate. 11 U.S.C. 362(b)(2).

Current support debts survive a bankruptcy without the need for you to have to go to bankruptcy court. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, among the changes in creditor priority is that unpaid child support and alimony has priority over any other creditor, including taxes owed. If you are owed back support it is very important that you file a “proof of claim” with the bankruptcy court to receive payment.

The bankruptcy law requires the trustee in bankruptcy, if there is a claim for a domestic support obligation in a case, to provide written notice to the party to whom the domestic support obligation is owed, and to the state’s Child Support Enforcement Agency. A notice at the time of filing and a second notice at the time of discharge are required. In the notice to the creditor, the trustee must provide contact information for your state’s Child Support Enforcement Agency.

The new bankruptcy law made non-support obligations from a divorce or separation non-dischargeable in a chapter 7 bankruptcy, if the discharge of the obligation would harm the spouse to whom the obligation is owed more than it would harm the person who owes it, your ex-spouse. 11 U.S.C. 523(a)(15). A debt that is non-dischargeable means that your ex-spouse is still responsible for it. You would need to file a complaint in bankruptcy court to get the property settlement debt excepted from discharge. If you don’t file a claim with the bankruptcy court, the debt may be wiped out and you won’t be able to collect it later.

The discharge in a chapter 13 case is somewhat broader than in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts arising from property settlements in divorce or separation proceedings.

How do bankruptcy courts decide what’s a support obligation and what’s a property settlement? The courts have based their decisions on such questions as:

Does the obligation terminate or reduce with the occurrence of certain events, like remarriage or a child turning 18?
Is the obligation in installments or a lump sum?
Are there minor children?
What is the relative health and education of the parties?
Was there a need for support at the time of the divorce?

The way in which the judgment of divorce is drafted can reduce the chance that the bankruptcy court will discharge the debt. The likelihood that the debt will not be discharged by labeling the debt payments as either support or alimony in the decree.

If you’re listed as a creditor on your ex-spouse’s bankruptcy petition, you should receive notice from the bankruptcy court of the filing and information about the date and time of the first meeting of creditors (known as a “341 meeting”). You should also receive information on the deadline for filing a claim and a proof of claim form for filling out.

“Cohabitation” and Interpretation of Separation Agreement’s Provisions Applicable to Maintenance

A typical separation agreement that provides for post-divorce maintenance will have a number of provisions describing circumstances under which such maintenance can be terminated. One of the more common clauses speaks of the spousal maintenance being terminated where the former spouse is cohabitating with another adult of opposite sex for a period of time. Most separation agreements do not define cohabitation, but the courts have held that in order for cohabitation to take place, there must be a sexual relationship, as well as a degree of economic partnership between the former spouse and the unrelated adult of the opposite sex. In Graev v. Graev, __ N.Y.3d __ (October 21, 2008) the Court of Appeals had to decide whether the term “cohabitation” as included in the parties’ separation agreement was unambiguous, and whether the prior standard utilized by the courts was still valid. In a 4-3 opinion, a divided Court of Appeals ruled yesterday that “cohabitation” is an ambiguous term whose definition for purposes of potential violations of separation and divorce agreements depends on what the parties understood it to mean when making their settlements. While all of the judges agreed that a couple need not share household expenses or function as a single economic unit to be cohabitating, the Court was divided over how to resolve the dispute between Linda and Lawrence Graev and the $11,000 in monthly maintenance fees he contends she forfeited by living with a boyfriend for at least 60 straight days in violation of their separation agreement. Since the Court of Appeals held that the term “cohabitation” as contained in the parties’ separation agreement was ambiguous, it remanded the case back to the trial court to hold a fact-finding hearing to determine what the parties’ understanding of this term was at the time the separation agreement was executed. As the Court of Appeals pointed in the footnote, “[t]he wisest rule, of course, is for parties in the future to make their intentions clear by careful drafting.”

Child Support In Shared Custody Situations

Child support under Domestic Relations Law §240 or Family Court Act §413 is not difficult to calculate in situations where there is a parent who clearly has a primary physical residence of the child. However, where the child spends equal time with both parents, these issues become a lot more complicated. Domestic Relations Law §240[1-b](f) requires that “The court shall calculate the basic child support obligation, and the non-custodial parent’s pro rata share of the basic child support obligation”. Therefore, which parent becomes the non-custodial parent in shared custody situation? This question was addressed in the 1998 case of Baraby v. Baraby, 250 A.D.2d 201 (3rd Dept. 1998).

In Baraby, the Appellate Division held that:

where, as here, the parents’ custodial arrangement splits the children’s physical custody so that neither can be said to have physical custody of the children for a majority of the time, the parent having the greater pro rata share of the child support obligation, determined after application of the three-step statutory formula of the CSSA, should be identified as the “noncustodial” parent for the purpose of support.

Since the statute is silent as to joint custody arrangements, the court ruled that for purposes of complying with the statute, one parent must be deemed “custodial” and the other “non custodial.” This step must be taken before a deviation from the support guidelines could be made under Domestic Relations Law §240[1-b](f) and (g). The parent with higher income is declared to be the non-custodial parent for child support calculations. This result problematic in situations where the parents’ incomes are close to each other.

For parents who are contemplating true shared custody, the issues of child support must be carefully addressed in the separation agreement to provide language explaining the contemplated child support arrangement and the reasons the parents are entering into such arrangement. Baraby does not stand for the proposition that the parent with the higher income must pay full child support. The parents are still free to opt out of the Child Support Standards Act, provided that at least minimum statutory child support is being paid, and the reasons for the opt-out are clearly stated.

If the court is deciding these issues in the contest of child support modification, then the party with the higher income should present information allowing the court to make a deviation from the child support guidelines pursuant to Domestic Relations Law §240[1-b](f) and (g).

Temporary Maintenance and Prenuptial Agreements

While a pre-nuptial agreement might restrict or waive a spouse’s right to maintenance and equitable distribution, it may not bar temporary relief, including temporary maintenance, interim counsel fees, and a temporary injunction against the disposing of marital property. Solomon v. Solomon, 224 A.D.2d 331 (1st Dept. 1996). In cases where the parties’ pre-nuptial agreement specifically provides that no maintenance will be awarded pendent lite, however, courts have held that no temporary maintenance should be awarded. See, e.g., Arzin v. Covello, 175 Misc.2d 453 (Sup. Ct., New York County 1998).

In Forsberg v. Forsberg, 219 A.D.2d 615 (2d Dept. 1995), the Second Department upheld the validity of the parties’ pre-nuptial agreement. Nevertheless, the appellate court found that Supreme Court did not improvidently exercise its discretion in awarding the wife $200.00 per week in temporary maintenance. The Second Department noted that, “Generally, the remedy for any seeming inequity in the award of temporary maintenance is a speedy trial at which the rights of the parties may be fully determined.” Id. at 617.

Thus, any pre-nuptial agreements must be carefully drafted to specifically prohibit any claims for temporary maintenance.