Massachusetts Lawyer Blog

Modification of a MA child support order was recently discussed in the Massachusetts Appeals Court case, Kenneth R. Whelan vs. Kathleen A. Whelan. One of the issues discussed in this case involved self-employment income as it relates to MA child support obligations. In a footnote, Note (17), the court writes:

(17) New Child Support Guidelines became effective in Massachusetts on January 1, 2009. The new Guidelines define income as "gross income from whatever source regardless of whether that income is recognized by the Internal Revenue Code or reported to the Internal Revenue Service or State Department of Revenue or other taxing authority." Guidelines I-A (2009). With respect to income from self-employment, the new Guidelines provide that "[i]n general, income and expenses from self- employment or operation of a business should be carefully reviewed to determine the appropriate level of gross income available to the parent to satisfy a child support obligation. In many cases this amount will differ from a determination of business income for tax purposes." Guidelines I-C (2009).

While the prior Child Support Guidelines, "do not specifically provide for deduction of business-related expenses from self-employment income[,]" the court indicated the new MA Child Support Guidelines "clarify" the approach MA courts have taken.

The 2006 Guidelines, in effect at the time of trial, do not specifically provide for deduction of business-related expenses from self-employment income. Indeed, these guidelines list in the definition of income from whatever source both "income from self-employment" as well as, by way of comparison, "net rental income." Guidelines I-A(1), (25) (2006). Nevertheless, we think it is implicit that such expenses may be deducted where they are reasonable and necessary for the production of income, and our decisional law supports this conclusion. See, e.g., Smith-Clarke v. Clarke, 44 Mass. App. Ct. 404, 406 (1998) (due to lack of substantiation and commingling of personal and business expenditures, judge properly could disregard certain claimed business deductions from husband's gross income or substitute a reasonable figure for others); Maillet v. Maillet, 64 Mass. App. Ct. 683, 689-690 (2005) (remand ordered where financial statement of husband, sole owner of business, set forth income of $800 per week, and "his corporation in 2002 had income of $227,744 exclusive of suspended losses and depreciation").

The court reasoned the test to be applied by a judge in determining income from self-employment is,

...whether claimed business deductions are reasonable and necessary to the production of income, without regard to whether those deductions may be claimed for Federal or State income tax purposes.

While the MA Child Support Guidelines help bring a degree of certainty to Massachusetts child support orders, this case shows the numbers one uses in the child support formula may not necessarily be the same as income reported on tax forms or found in business reports. In self-employment and investment income cases, it's important to be able to articulate what income and expenses should be taken into consideration in determining the income which should be entered into the child support worksheet.

Technorati Tags: MA Divorce, Modification, Self-Employment, Income, Modification

Law and business clients often ask, "Have we reached the bottom, yet?" The number of bankruptcy inquiries, loan workout requests, short-sale questions, employment termination calls, and divorce consultations our law firm is receiving makes me believe we have not reached the bottom yet.

Local economic statistics referenced in three recent Boston Business Journal's (BBJ) articles make  me further believe that my anecdotal evidence isn't merely anecdotal. The BBJ's, May's home sales near 20-year low, adds,

This report shows that home sales are still slow in Massachusetts. In the late 1990s and into the early part of this century, the state was averaging over 5,000 single-family home sales during the month of May. Last month, we saw fewer than 3,300 home sales, making it the lowest sales pace for the month of May in almost two decades,” said Timothy M. Warren Jr., chief executive officer of The Warren Group, in a statement.

Further, a BBJ article from last week, Mass. foreclosures slipped 59% in May indicates that while foreclosure deeds dropped compared to last year,

...the number of foreclosure petitions filed in May was six times the 390 petitions filed the same month a year ago. Foreclosure petitions mark the start of the foreclosure process in Massachusetts. In addition, the number of foreclosure petitions climbed 15.7 percent from 2,013 in April.

And finally, another BBJ article from last week, Mass. unemployment rate hits 8.2 percent, adds:

Massachusetts’ unemployment rate inched up to 8.2 percent in May, as local employers reported 111,100 fewer workers on their payrolls when compared to the year-earlier period.

No, I'm afraid it appears we have not reached the bottom yet and perhaps we may not for some time...

Does your Massachusetts divorce agreement have a provision that addresses disagreements regarding the college selection process or does it tightly define what are reasonable education costs? Perhaps it should. With a number of colleges now above $50,000/year for each child, and the economy where it's at, disputes over education expenses are likely to be on the rise for some time.

What are "reasonable college expenses" and what happens when parents disagree during the college selection process? The answer depends on many factors, holds a MA Appeals Court in Paula A. Mandel vs. Shawn W. Mandel. The court introduced the Mandel case as follows:

In 1996, the parties, Paula Mandel and Shawn Mandel, obligated themselves...to each pay for one-half of their daughters' "college education expenses." The provision contained no further explanation regarding cost or choice of school, although another...provision provided both parents with the right to participate fully in their daughters' activities and with input into educational decisions. A decade later, their older daughter enrolled at a private university costing approximately $34,000 a year. The parties never reached an agreement on payment, and when Shawn refused to pay fifty percent of the cost, Paula initiated contempt proceedings against him. A Probate and Family Court judge eventually found that Paula and the child had selected a school "financially out of reach" for Shawn and ordered him to pay approximately one-quarter of the expenses of the private college. On appeal, Paula claims the judge erred by not requiring Shawn to pay one-half of the expenses actually incurred. Shawn argues that the judge properly limited his obligation to the expenses he would have paid had the child attended a State university.

In Mandel, the court ultimately held that further proceedings, regarding the reasonableness of the college expenses in these circumstances, are required. Some of the specific terms in the Mandel Agreement included,

Both parents shall participate fully in providing access to the child and her activities, and input into educational, medical, behavioral and other significant decisions affecting the child.
...

The Husband and Wife shall each contribute 50% toward each child's college education expenses, including, but not limited to, room, board, tuition, books, fees and other normal educational expenses.

Are reasonable education costs measured using public school costs as the standard, or are they the actual costs at a private school?  Or, is it something different altogether? In addressing these questions, the court reviewed "all relevant equitable factors" which courts have considered in examining the educational needs of the child and the financial circumstances of the parents, including:

• Financial resources of both parents;
• Standard of living the child would have enjoyed if the marriage had not been dissolved;
• Financial resources of the child;
• Cost of the school;
• Programs offered at the school;
• Child's scholastic aptitude;
• How the school meets the child's goals;
• Benefits the child will receive from attending the school;
• Parents' standard of living," which in some cases "includes the ability to provide certain opportunities...such as private school education"; and
• Massachusetts Child Support Guidelines, encouraging "joint parental responsibility for child support in proportion to, or as a percentage of, income."

An additional factor mentioned by the court in its opinion considers the college decision making process,

the extent to which [a party] unjustifiably may have been excluded from the [college] decision-making process.

But it appears timing, or taking some action during the process, is also an important factor,

Conversely, a party who has sat on his or her right to intervene, or to seek approval from the court when the parties disagree, until the college selection process has been completed, may have waived his or her right to object to the college and its concomitant cost.

So at the end of the day, the answer is, "it depends" and thus will require further litigation to answer the question as to what is reasonable under the circumstances. Knowing this analysis could be waiting for you in a divorce, do you prefer to take steps now to lock down these issues in a divorce agreement or leave them open for later interpretation. If later, are there any special considerations you want included in your agreement?

Divorce and education disputes are likely to be on the rise, as the court noted in a footnote,

Disagreement itself is not surprising. "With the explosive growth in the cost of financing a college education, the issue of who will pay those costs after the divorce of the parents is becoming increasingly acute." 2 Kindregan & Inker, Family Law and Practice § 39:50, at 830 (3d ed. 2002). Overall, college tuition and fees have increased 439 percent from 1982 to 2007, adjusted for inflation. National Center for Public Policy and Higher Education, Measuring Up 2008: The National Report Card on Higher Education 8 (2008). The difference between college costs at different types of universities is also significant. According to the National Association of State Universities and Land-Grant Colleges(NASULGC), tuition and fees averaged about $3,200 for community colleges and $33,000 for private research universities in 2006-2007. NASULGC, University Tuition, Consumer Choice and College Affordability: Strategies for Addressing a Higher Education Affordability Challenge 14, 85 (2008).

Technorati Tags: Divorce, Separation, Separation agreement, Child support, Modification, Child support, Education, Reasonable college expenses, Massachusetts, divorce agreement

In Kennedy, an estate tried to recover $402,000 that was paid to an ex-spouse.  In the divorce, the wife gave up her rights to the husband's pension or other work-related benefits. However, the husband failed to remove his ex-wife as the beneficiary of his investment plan assets. Following his death, the funds went to the ex-spouse. Prior to this Supreme Court decision, various courts had reached different conclusions about this type of issue (This post follows my prior post, Rolling Over in His Grave--Another Lesson in Costly Beneficiary Form Mistakes.)

The Court, in Kennedy, found plan benefits can be waived under a divorce decree, however, "...the plan administrator did its statutory ERISA duty by paying the benefits to [the ex-spouse] in conformity with the plan documents.”

So the ex-spouse keeps the money, or does she? A footnote indicates the estate might still be able to pursue an action against the ex-spouse to recover the funds. An analysis at the Scotus Wiki states,

The Court, in a footnote, left open the question of whether the estate could have sued to recover the benefits from Liv after she received them. The footnote mentioned prior rulings that seemed to say that a prior contractual agreement to forfeit funds may be enforceable after the distribution without violating ERISA; once the money is paid out, it loses its ERISA protection, those rulings had indicated.

Beneficiary designation forms may appear simple, but think twice about how your estate plan or divorce relates to them.

Technorati Tags: estate, divorce, beneficiary form, ERISA

What is considered "income" in a Massachusetts divorce for the purposes of Child Support under the new Child Support Guidelines Effective January 1, 2009?

For purposes of these guidelines, income is defined as gross income from whatever source regardless of whether that income is recognized by the Internal Revenue Code or reported to the Internal Revenue Service or state Department of Revenue or other taxing authority. Those sources include, but are not limited to, the following:

1. (a) salaries, wages, overtime and tips; (b) income from self employment;
2. commissions;
3. severance pay;
4. royalties;
5. bonuses;
6. interest and dividends;
7. income derived from businesses/partnerships;
8. social security excluding any benefit due to a child’s own disability;
9. veterans’ benefits;
10. military pay, allowances and allotments;
11. insurance benefits, including those received for disability and personal injury, but excluding reimbursements for property losses;
12. workers’ compensation;
13. unemployment compensation;
14. pensions;
15. annuities;
16. distributions and income from trusts;
17. capital gains in real and personal property transactions to the extent that they represent a regular source of income;
18. spousal support received from a person not a party to this order;
19. contractual agreements;
20. perquisites or in-kind compensation to the extent that they represent a regular source of income;
21. unearned income of children, in the Court’s discretion;
22. income from life insurance or endowment contracts;
23. income from interest in an estate, either directly or through a trust;
24. lottery or gambling winnings received either in a lump sum or in the form of an annuity;
25. prizes or awards;
26. net rental income;
27. funds received from earned income credit; and
28. any other form of income or compensation not specifically itemized above.

The New Guidelines also discuss Overtime and Secondary Jobs, Self-Employment or Other Income, Unreported Income, and Non-Parent Guardian Income.

Did you know there are lawyers in Massachusetts who are qualified for offering services in certain Probate and Family Courts on a limited basis?  This allows you to hire a lawyer to help you with some things but not others.  For instance, a lawyer could help you draft a complaint for divorce, a probate petition, a license to sell real estate, or coach you on evidence matters.  Some could even be hired for a day or part of day to attend a motion, deposition, conference, mediation, hearing, or trial. 

The goal of this program is to find ways for people to gain access to qualified attorneys on an as needed basis.  The philosophy is, some representation is better than no representation.  You can read more about this program at the Massachusetts Bar Association site or visit here for various orders from the SJC extending the program in certain counties through 2008.

Imagine getting divorced, thinking the law states after divorce your ex is no longer your life insurance beneficiary. You don’t name a new beneficiary thinking the payout will go to your estate.

Maybe not...

Marla Presley in her firm’s website discusses a case in Penn, decided May 9, 2008 where the Penn. Superior Court ruled that the Employee Retirement Income Security Act (“ERISA”) preempts a state law that mandated the revocation of beneficiary designation upon divorce. The gentleman had filled out the beneficiary form listing his wife as the primary and his nephew as the contingent beneficiary. After his divorce he never changed the form. The ex got it all. Probably not the result that was intended.

Beneficiary designation forms are an often overlooked area of estate planning that can have dire consequences if not taken care of. I represented one person in a case where the beneficiary form was executed, put in an envelope, but never mailed. It became an expensive stamp.