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Imputation of Income in Divorce, Part 1

Part 1 of 2

Spousal maintenance and child support calculations are often a source of conflict and tension in divorce proceedings, but they don’t have to cause such complications. There are many instances where both spouses understand the need for maintenance or child support and will work together to reach a fair and mutually agreeable solution. Unfortunately, there are other cases where one party attempts to evade their support obligation by hiding their income or earning potential. When traditional discovery tools fail to prove the individual’s true income, an argument may be made for the imputation of income.

What is Imputation of Income?

Imputation of income is when a Court attributes a calculated amount of income to a parent, even if the parent does not actually earn that amount. The Court determines the amount of income the parent could make based on their background, education, and specialized competencies. Even if the parent is earning less than the amount determined by the imputation of income, the Court can still use the imputed income as the basis for calculating the amount of maintenance or child support to be paid.

This is the first of two articles discussing the imputation of income. In this article, we will discuss the preliminary discovery steps that must be taken prior to imputing income, as well as the three scenarios whereby a Court will impute income on a child support or maintenance obligor.

When May Income Be Imputed?

Under Illinois law, income may be imputed when there is doubt that the obligor’s reported income is accurate and there is evidence to suggest that the obligor is or can be earning more than they claim. Every court in Illinois has upheld a court’s power to impute income.

For example, in [citation], the Appellate Court summarized the three instances when income may be imputed:

  • “It is well established in Illinois, ‘[i]n order to impute income, a Court must find that one of the following factors applies: (1) the payor is voluntarily unemployed * * *; (2) the payor is attempting to evade a support obligation * * *; or (3) the payor has unreasonably failed to take advantage of an employment opportunity.’”

To Impute, We Must Infer

It sounds simple enough: an imputation of income is based on an inference of earnings or would-be earnings. A Court will not impute income if it does not believe a party is earning, or could be earning, more money than they claim. Producing evidence to support such an inference is the first, and perhaps most important, step in successfully arguing for the imputation of income.

There are several methods through which a child support or maintenance obligor may seek to decrease their obligation, but the two most common practices are:

  1. Hiding income
  2. Failing to seek full employment

Both scenarios are unique and require differing discovery methods. We’ll take a closer look at discovery methods in the next section.

Income Discovery Methods: Hiding Income

There are several ways an individual could attempt to conceal their income, with the two most common methods being money laundering and failure to report cash earnings.

What is Laundering?

  • Laundering is the transfer of illegally obtained money or investments through an outside party to conceal the true source. Often, the outside party will be a friend or family member. The obligor may request that their earnings be directed through the third party source, who in turn will either “loan” money to the obligor or pay for the obligor’s expenses as a “favor.” Either way, the obligor is spending their own money under false pretenses. Typically, money laundering is accomplished when the obligor is a small business owner or works for a family member or friend.

How is Laundered Income Uncovered?

  • Notices to produce and subpoenaed documents will fail to uncover income hidden through laundering; the obligor’s bank records will show very little earned income, and deposits of personal checks can easily be dismissed as a “loan” from a friend or relative. The key is that an obligor’s laundering can only be as effective as their coconspirators are dedicated. The obligee’s attorney should pursue aggressive discovery on all parties who are supposedly “lending” the obligor money, as well as on the obligor themself. All parties involved should be deposed and, to the extent possible, their earnings from employment should be verified. The money should be traced as far back as possible to determine its origins and all alibis should be thoroughly investigated.

What is Failure to Report Cash Earnings?

  • The failure to report cash earnings is less dependent on the cooperation of coconspirators. Many contractors and service employees receive substantial cash income, which they may fail to report.

How are Unreported Cash Earnings Uncovered?

  • The discovery of unreported cash earnings should be focused on the bank records and paystubs of the obligor. They may deposit some of their cash earnings, and their employer may keep records of cash payments made to them. Even if the obligor’s bank records are consistent with their reported earnings and their employer has no records of cash payments, the obligor still must demonstrate a standard of living consistent with their reported earnings. Unlike the money launderer, the cash-hider has no alibi for large monthly expenses or lavish expenditures. Proof of a lifestyle inconsistent with the obligor’s reported earnings will likely cast doubt on their reported income.

Income Discovery Methods: Failure to Seek Full Employment

Unemployment and underemployment are unfortunate and occasionally traumatic parts of life. However, there are many instances in which an obligor may fail to take a higher paying job or seek employment in an attempt to avoid a support obligation.

Child support is based on the net income of the obligor and maintenance is based on a list of factors, including the present and future earnings of both parties. An obligor may seek to reduce or avoid their support obligation by taking a lower-paying job or failing to seek full-time employment during the pendency of their case.

How is the Failure to Seek Full Employment Uncovered?

  • Unlike hiding income, this tactic is much easier to address. The obligee should first request that the obligor maintain a job diary to document their job search. Job diaries are typically accompanied by a requirement that the job seeker applies to a predetermined number of jobs each week and provides detailed information on each application. Where an obligor is underemployed, the obligee should request that the court takes into consideration the obligor’s prior earnings in determining any support obligation.

Seek the Representation of a Divorce Attorney

Arguing for the imputation of income is best accomplished with the representation of an experienced divorce attorney. If you are an obligee who suspects the obligor in your case is not being forthcoming with their income, contact Conniff Law Offices of Chicago and Oak Park to schedule a consultation without delay. Our team will work tirelessly on your behalf to secure the maintenance or child support to which you may be entitled.

Learn More in Part Two

We’ve covered the basic answer to “what is imputation of income?” and discussed the common methods taken by obligors to hide their income or cash earnings. In part two of this series, we will look at some real-life examples of these scenarios and explain how the discovery methods we discussed in part one were vital to successfully arguing for the imputation of income.

 

Read Part 2

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Highlights of The New Tax Law’s Impact on Divorcing Couples

If you have been reading about the new tax laws that are going into effect in 2018, you are not alone. How will these new tax laws affect you and your family in the event of a divorce or separation?

There is no simple answer, and the new law could impact one family differently from another. We would like to take some time to explain as much as we can. If you have further questions, do not hesitate to give us a call or contact our experienced Chicago family law firm online.

Spousal Maintenance (Alimony) Changes

For divorcing or divorced Chicago couples, impacts on spousal maintenance (alimony) are at the forefront when tax season arrives. Here is how the updated law impacts divorces enacted after the law has gone into effect:

  1. Spousal maintenance payments are no longer deductible for divorce agreements executed or modified after December 31, 2018.
  2. The receipt of spousal maintenance is no longer includible in gross income for divorce agreements executed or modified after December 31, 2018.
  3. In other words, effective January 1, 2019, spousal maintenance payment are no longer deductible by the paying spouse or taxable to the receiving spouse, BUT ONLY FOR COUPLES DIVORCING AFTER JANUARY 1, 2019.

For Divorce Agreements Executed or Modified on or Before December 31, 2018:

Chicago and Oak Park readers who were divorced before 2019 should know:

  1. Maintenance and unallocated support payments will still be deductible.
  2. The receipt of maintenance and unallocated support will still be includible in gross income.
  3. Maintenance is not deductible if the parties continue to live in the same residence.

Individual Tax Rate Change

  1. Individual income tax rates have been lowered to 10%, 12%, 22%, 24%, 32%, 35%, and 37%

Exemption, Itemized and Standard Deductions Changes After December 31, 2017

  1. After December 31, 2017, a payee spouse can no longer deduct as a miscellaneous itemized deduction legal fees incurred which are attributable to legal services rendered in securing spousal maintenance.
  2. Only $10,000 ($5,000 for married filing separately) of non-business state and local tax deductions (SALT) may be deducted, including state and local real property taxes, personal property taxes and state and local taxes.
  3. You can only deduct mortgage interest related to new loans up to $750,000 for a first and second home.
  4. You will not be able to deduct home equity interest, even if it is currently existing.
  5. Taxpayers with existing mortgages can continue to deduct interest on a total of $1 million of debt for a first and second home.
  6. The adjusted gross income floor is reduced from 10% to 7.5% for the medical expenses itemized deductions in 2017 and 2018 tax years.
  7. You can no longer deduct moving expense as of December 31, 2017, unless you are an active duty member of the Armed Forces.

    STANDARD DEDUCTIONS

    Tax Filing Status20172018
    Single$6,500$12,000
    Married Filing Separately$6,500$12,000
    Head of Household$9,350$18,000
    Married Filing Jointly$13,000$24,000
  8. Beginning 2018, the standard deduction will be $24,000 for married couples filing joint returns.
  9. Beginning 2018, the standard deduction will be $18,000 for filing as head-of-household.
  10. Beginning 2018, the standard deduction will be $12,000 for all other filers.
  11. Beginning 2018, there are no longer any personal or dependency exemptions.

Individual Tax Deduction and Credits

  1. The new tax law keeps the “additional standard deduction” for people age 65 and over of $1,600 for singles and $1,300 for each married spouse in 2018.
  2. A non-custodial parent cannot qualify for the Earned Income Credit.
  3. A non-custodial parent cannot qualify for the Child Care Credit.
  4. A non-custodial parent cannot file as Head of Household.

Ambiguities In Individual Tax Deductions and Credits

  1. The parent with the most parenting time overnights used to be presumed to have the right to the dependency exemption absent an agreement to the contrary.
  2. It is yet to be determined whether the parent with the most parenting time overnights will be presumed to have the right to the child tax credit.
  3. It is yet to be determined if a court order gives each parent half of the parenting time, whether the IRS will continue not to consider 50/50 custody, and the parent with the most overnights will receive the Earned Income Credit, the Child Tax Credit, and the right to file as Head of Household.

Ambiguities like these are why it is essential to have a qualified family law attorney handling your divorce and a tax professional handling your taxes.

Contact Our Chicago Divorce Lawyers with Questions

The above highlights are not intended to be a comprehensive summary of all the new tax laws. Also, the Oak Park family law attorneys at Conniff Law Offices are not tax lawyers. However, for more information on the impact the new tax laws may have on your divorce, please contact our skilled attorneys at 708-763-0999.

In accord with U.S. Treasury Department regulations we must inform you, unless expressly stated otherwise, that any advice contained in this communication is not intended nor shall be used for the purpose of avoiding tax-related penalties under the Internal Revenue Code or for the promotion, marketing or recommendation to another party of any federal tax transactions or matters set forth herein.

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Prenuptial Agreements vs. Postnuptial Agreements

The most obvious difference between prenuptial vs. postnuptial agreements is when they take place. A prenuptial agreement (also called a prenup) must be made before a couple gets married, while a postnuptial agreement can be drawn up after a couple is already married. This may be the most immediately apparent difference, but it’s certainly not the only one of importance. When deciding whether to get a prenuptial agreement or postnuptial agreement, you should know what can and cannot be included in them. Get the details you need to know with the Chicago and Oak Park family law attorneys from Conniff Law Offices, below.

What is a Prenuptial Agreement?

A prenuptial agreement is an agreement made before a couple gets married that outlines how their assets are to be divided if they were to get divorced or if one spouse were to pass away. Some argue that a prenup is unromantic and can even doom a marriage before it begins, while others believe it to be reasonable and responsible, especially for re-marrying couples who have a lot of individual assets or who have children from previous marriages.

What Can Be Included in a Prenup?

  • – Distinctions between separate and marital property
  • – Protections against the other spouse’s debts
  • – Terms designed to provide for children from previous marriages
  • – Protections designed to keep family property in the family
  • – Protections for estate plans
  • – Instructions on how property should be distributed in the event of a divorce

What Cannot Be Included in a Prenup?

  • – Terms detailing anything illegal
  • – Decisions regarding child support or child custody
  • – Terms that could encourage divorce with financial incentives

What is a Postnuptial Agreement?

Once you are married, your individual assets become shared assets between you and your spouse. A postnuptial agreement is similar to a prenup in that it allows you to create an outline for how those assets should be divided in the event of a divorce or the passing of a spouse, but as we noted above, a postnuptial agreement can be made after you’re already married.

What Can Be Included in a Postnuptial Agreement?

  • – Division of property and assets after divorce
  • – Limitations for spousal support
  • – Division of debts (mortgage loan, credit card debt, etc.)
  • – Instructions for how to handle assets following the death of one spouse

What Cannot Be Included in a Postnuptial Agreement?

  • – Terms for child support and child custody
  • – Terms detailing anything illegal

Some couples opt for a postnuptial agreement simply because, through all of the excitement of planning their marriage, they never considered a prenup but still recognize the value of an agreed-upon division of assets.

What’s the Bottom Line?

Some think that the creation of a prenup or postnuptial agreement invites negativity into a marriage, but this certainly does not have to be true. People and their emotions will inevitably (and naturally) change over time. For some marriages, these changes lead to the realization that the spouses are no longer happy together. If this were to happen, or if one spouse were to pass away, having a prenup or postnup can save you from a great deal of heartache, headache, and financial stress. So rather than viewing such agreements as a “bad omen,” see them as a way to protect both yourself and your spouse if the unfortunate were to occur.

Consult a Family Law Attorney

Conniff Law Offices of Chicago and Oak Park invite those who may be unsure whether a prenup or postnuptial agreement is right for their marriage to contact us for a consultation. An experienced family law attorney from our team can discuss your options in greater depth with you and draft a marital agreement that addresses all of your needs.

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Divorce and Taxes: What You Need to Know

Taxes after divorce: Presently, this may feel like yet another unwelcomed stressor in your life. But armed with all the right information, you can navigate this new tax situation with greater ease. The family law professionals at Conniff Law Offices in Chicago and Oak Park are here to help with any stage of your divorce, and we have some tips for navigating the world of post-divorce taxes.

Know Your New Filing Status

The tax return form you use will depend on your marital status at the end of the year. The cutoff is at midnight on December 31 of the tax year in which you are filing. That means, for example, if you are divorced in 2020, you and your ex will be filing your 2020 taxes separately. If you have the minor children for a majority of the time, you may have the advantage of filing as Head of Household. If not, you will file under the status of a single taxpayer. You must check with your tax prepare to confirm your filing status.

Will Child Support and Alimony Affect Your Taxes?

Child support payments are not tax deductible for the person making them and do not need to be claimed as income by the person receiving them.

The answer for maintenance (spousal support) payments will depend on when your divorce was finalized:

  • – If your divorce was finalized after December 31, 2018, maintenance (spousal support) payments are not tax deductible for the person making them, and do not need to be claimed by the person receiving them.
  • – If your divorce was finalized before December 31, 2018, maintenance (spousal support) payments are deductible for the person making them, and must be claimed by the person receiving them, if and only if, your divorce documents include terms for tax deductible maintenance or spousal support.

What if your divorce agreement combines alimony and child support as one single “family support” payment? This would be treated like alimony and is, therefore, deductible to the payer and should be claimed by the recipient. However, we recommend consulting with a tax professional in complicated financial situations.

Be Aware of the Rules That Apply to Support

Maintenance (spousal support) payments that are “front-loaded” or concentrated within the first year or two following divorce may be labeled as a non-deductible property settlement by the IRS. Are you making or receiving maintenance payments that are scheduled to end within six months of your child’s 18th or 21st birthday? Know that the IRS may actually consider this to be child support disguised as maintenance. This is one of the many reasons it is recommended that you consult a tax professional when filing taxes after divorce.

Which Parent Will Claim the Children as Dependents?

Sometimes, your divorce agreement will state which parent is to claim the children as dependents. If not, the parent who has court-ordered physical custody of the children will claim them. Regarding joint custody, the parent who has the children for the most days during the tax year will claim them as dependents.

Claiming Head of Household With a Child

If your marital status by the last day of the year is “single,” claiming Head of Household would allow you to take a higher standard deduction. Note that you will need to have a qualifying dependent whose support you pay more than half of in order to claim Head of Household.  You must consult your tax advisor for further qualifying elements.

Protect Yourself By Filing Your Taxes Early

If things are going awry and your former spouse is threatening to claim the children even though you are the one who is entitled to do so, you should protect yourself by filing early in the year. If your ex does attempt to claim the children, the IRS would see that you have already filed and claimed them, and would require your ex to prove that they were entitled to claim them.

Don’t Overlook the Child and Dependent Care Credit

If, as a parent with court-ordered custody of children under the age of 13, you incur work-related child care for them, you may reserve the right to claim a tax credit of up to $1,050 for one child, or $2,100 for two or more children.

Change Your Withholding On Form W-4 If Necessary

If you are employed, it is often advantageous to review your withholding following major life changes. Your taxes after divorce, for example, may come with different withholding allowances from when you were married.

Consult With a Professional for Peace of Mind

Divorce and taxes can quickly become confusing and complicated, especially during the first year following your divorce. As such, it is strongly recommended that you consult with a tax professional who can help ensure you’re filing correctly and maximizing your refund.

If you have any lingering questions about divorce or custody, contact Conniff Law Offices or take a moment to browse our law blog to learn more.

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When Does Child Support End in Illinois?

If you’re in the middle of a divorce or separation, and children are involved, the question, “When does child support end?” may have come up. An Order for Support specifies an end date, which is usually the child’s 18th birthday, but not always.

There are situations where child support payments extend beyond the child’s coming of age. Non-minor child support is often extended and awarded if the child is:

  • – Still in high school
  • – Physically or mentally disabled
  • – Attending college

Illinois Child Support Beyond the Age of 18

The extent of non-minor child support in Illinois depends significantly on the situation:

  • – Child is Attending High School: If a child turns 18 while still in high school, Illinois allows child support to be extended until the child graduates or turns 19. Of course, the child is no longer a minor after they turn 18, but it is likely that the child still requires the parental support they needed at age 17. Be sure to double-check the Order for Support, and don’t assume this automatically applies to your case.
  • – Child is Disabled: The court can be petitioned for non-minor child support if the child is physically or mentally disabled. Child support payments can be paid indefinitely for disabled children who are not emancipated.
  • – Child is Attending College: Educational expenses can cause child support to be extended into adulthood. Both parents — as well as the child — can be ordered by a judge to split the costs of college or some other form of professional training. These shared expenses can include books, supplies, tuition, room and board, health insurance and more. There are limits, however. Child support payments typically aren’t extended past the point of a bachelor’s degree.

Non-Minor Child Support: What You Need to Know

Non-minor child support isn’t a legal requirement. For example, non-minor child support isn’t automatically required because the topic of college came up when child support was discussed during the divorce proceedings. To make the process simpler, you can go to court before the child reaches the age of 18 and come to an agreement with the other parent on how educational expenses will be paid. If no agreement can be reached, a judge will make a decision for the parties involved.

How do judges decide who pays and how much? Unless one parent is struggling financially and unable to make shared payments, divorcing or separating couples will receive an order for shared expenses that details how much the recipient is responsible for paying and for how long. Judges consider many factors when it comes to minor and non-minor child support, including:

  • -Both parents’ finances
  • -The quality of life the child would’ve had if the parents weren’t divorced or separated
  • -The child’s financial resources
  • -The child’s performance in school 

Reach Out with Your Child Support Questions

While there is a common answer to the question of when child support ends, the specifics of child support will vary from one family law case to another. At Conniff Law Offices, you’ll find experienced and compassionate family law lawyers in Chicago and Oak Park who are ready to represent your best interests. Contact us with any questions or to schedule a consultation today.

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