In Massachusetts, the Commonwealth’s child support guidelines are reviewed and revised every four years, at which time the child support task force examines issues with child support calculations, amendments in the percentages of payments by parties, and extraordinary situations that may affect the payment of child support. In evaluating the most recent changes, effective September 15, 2017, we are presenting a series of articles outlining the most significant changes to the guidelines.
Part III: Inter-relation of Alimony and Child support
The inter-relationship of alimony and child support has been a constant issue and point of contention in family law. The Alimony Reform Act of 2013 attempted to define that relationship and separate those support issues, but left open, or created, other questions. One of the primary issues is when to award alimony as opposed to child support, or both. The Child Support Guidelines now recognize that with difference in tax consequences, because child support is neither a tax deduction to taxable income while alimony is both, that the courts should take into consideration those tax consequences when issuing support orders. Accordingly, in cases where either a child support or alimony order would be appropriate, however, inappropriate to order both, the court has a third option. The court can now order “unallocated” support that both considers the needs of the parties and the needs of the children and utilizes the tax code to the parties benefit. The court is required to consider the tax consequences of such an order, and it is the responsibility of the parties to present creditable evidence of the tax effect of such an award.
As a simplified example, if the Husband earns $100,000 and Wife earns $20,000. Husband is ordered to pay $20,000 in child support, but that money is paid after taxes, and tax free to Wife. Husband is essentially paying taxes at his 25% taxable rate, then paying child support. Whereas if Husband was ordered to pay $30,000 of unallocated support, the remaining taxable income would be $70,000. From Wife’s perspective, she only pays taxes on her $20,000 income, thereby receiving the child support tax free. If she were to receive the unallocated support of $30,000 in addition to her income, she would be taxed on the entire $50,000; however, at the lower rate of 15%. Of course, the tax code, and tax consequences are much more complicated this shown in this scenario, it does illustrate that this is one matter in which the courts can analyze the full financial picture of the family to determine the overall financial benefit to the family. These issues require the assistance of an accountant in order to accurately assessment of the income, taxes and possible benefits.
Any issues relating to taxes should be reviewed by a qualified tax professional familiar with your situation. We work closely with several accountants and financil professional who are able to evaluate these issues and provide specific tax analysis.