Mediation successful - thank you all for your help!

[SopranoKris]

What is the name of your state? IL

We had our mediation session today and things went very well. We were done in under 2 hours and we both feel very comfortable & happy with our long-distance parenting agreement. The mediator joked that we were too easy and he wouldn't make any money off of us...hehehe

I felt so prepared coming into the session when I brought up many of the points that were suggested to me in this forum. I want to thank you all SO MUCH for your insights & advice. You've been immensely helpful!

 

[proud_parent]

Outstanding.

Kudos again for embracing mediation with the right attitude and for making it work for both parties and for your child!

 

[TinkerBelleLuvr]

curiousity here. What does the agreement look like? Many folks ask about them here.

 

[SopranoKris]

Hi Ginny,

Basically, they took a sample parenting plan and plugged in all of the things we agreed on: holidays, vacations, internet/webcam visitation, phone calls, etc. Instead of doing standard CS, we are doing "unallocated maintenance & support" so NCP gets the tax break and CP still gets the same amount that would have been given if it was strictly CS. All we can do now is see if the judge is going to allow it. The mediator felt comfortable with it, so we'll see what happens on May 1st.

 

[TinkerBelleLuvr]

From the tax perspective, if the IRS feels that you are hiding child support under the guise of alimony, it can cause audit issues. You should seriously consider that a portion of the money is child support and a portion alimony.

 

[TinkerBelleLuvr]

Are alimony payments considered taxable income?

Alimony, separate maintenance, and similar payments from your spouse or former spouse are taxable to you in the year received. The amount is reported on Form 1040 (PDF). You cannot use Form 1040A (PDF) or Form 1040EZ (PDF). Refer to Tax Topic 406, Alimony Received, or Publication 504, Divorced or Separated Individuals.

To help determine if these payments are considered alimony, please read the following:

The following rules apply to payments under divorce or separation instruments executed after 1984. They also apply to instruments that were modified after 1984 to:

(1) Specify that these rules will apply or

(2) Change the amount or period of payment or add or delete any contingency or condition.

For the rules for alimony payments under pre-1985 instruments, please see Publication 504, Divorced or Separated Individuals.

A payment to or for a spouse or former spouse under a divorce or separation instrument is alimony, if the spouses do not file a joint return with each other, if the following conditions are met:

(1) The payment must be made by cash, check, money order, etc.

(2) The instrument does not designate the payments as not includible in the gross income of the recipient spouse and not deductible by the payor spouse.

(3) The spouses are not members of the same household at the time the payments are made. Exception: If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree or court order may qualify as alimony even if you are members of the same household at the time of payment.

(4) There is no liability for payments after the death of the recipient spouse.

(5) The payment is not treated as child support.

For an explanation of these requirements please see, Publication 504, Divorced or Separated Individuals.

http://www.irs.gov/faqs/faq4-5.html

Specifically designated as child support. A payment will be treated as specifically designated as child support to the extent that the payment is reduced either:
On the happening of a contingency relating to your child, or

At a time that can be clearly associated with the contingency.

A payment may be treated as specifically designated as child support even if other separate payments are specifically designated as child support.

Contingency relating to your child. A contingency relates to your child if it depends on any event relating to that child. It does not matter whether the event is certain or likely to occur. Events relating to your child include the child's:
Becoming employed,

Dying,

Leaving the household,

Leaving school,

Marrying, or

Reaching a specified age or income level.


Clearly associated with a contingency. Payments that would otherwise qualify as alimony are presumed to be reduced at a time clearly associated with the happening of a contingency relating to your child only in the following situations.
The payments are to be reduced not more than 6 months before or after the date the child will reach 18, 21, or local age of majority.
The payments are to be reduced on two or more occasions that occur not more than 1 year before or after a different one of your children reaches a certain age from 18 to 24. This certain age must be the same for each child, but need not be a whole number of years.

In all other situations, reductions in payments are not treated as clearly associated with the happening of a contingency relating to your child.

Either you or the IRS can overcome the presumption in the two situations above. This is done by showing that the time at which the payments are to be reduced was determined independently of any contingencies relating to your children. For example, if you can show that the period of alimony payments is customary in the local jurisdiction, such as a period equal to one-half of the duration of the marriage, you can overcome the presumption and may be able to treat the amount as alimony.

http://www.irs.gov/publications/p504/ar02.html#d0e2027

I don't mess with the feds.

 

[JBMD]

Hi Ginny,

Instead of doing standard CS, we are doing "unallocated maintenance & support" so NCP gets the tax break and CP still gets the same amount that would have been given if it was strictly CS.

While that SOUNDS fine and dandy ... if someone is taking the deduction, then someone needs to be taking it into income. The IRS will get thier money .... regardless of how your court order is worded. When they do find out that dad is deducting child support he will be owing some back taxes after being audited ... or if they say it's alimony and you are not claming it on your return as income ... you will have some back taxes to pay.

It's best to call it what it is, so that everyone is in the clear!!!! If only we could all get a deduction for child support!

 

[SopranoKris]

Just to clarify: yes, the NCP will be deducting as alimony and yes, the CP will be claiming the money as income. No, we're not trying to dodge the feds or anything. In this case, one person makes significantly more money than the other. Even with the support added in as income, it wouldn't be enough to have a negative impact on the CP's taxes. Neither of us were aware of using "unallocated maintenance and support". We didn't request it to be that way, it was suggested by the mediator due to our unique circumstances. We're having both of our attorneys discuss it before we decide to go that route. No, neither of us want to incur the wrath of the feds!

 

[TinkerBelleLuvr]

If you are hiding child support in the guise of alimony, it can come back and bite the person paying it.

If you aim to end the money coming in around the time that the children are emancipated, then yes, it is CHILD SUPPORT, not alimony. If it ends when you remarry or die, then it is alimony.

 

[SopranoKris]

No, this will only be between 18 months to 2 years to allow CP to complete college & get a job. Whenever that happens, it will convert from being unallocated maintenance and support to just Child Support.

 

[TinkerBelleLuvr]

Highly, highly, highly suggest making the part that will be child support be child support NOW. The feds don't play nicely. I don't think the mediator knows her tax law very well.

 

[SopranoKris]

Thanks, Ginny. I was quite surprised to hear him suggest it in our session last night. That's why we're both waiting for our attorneys to review it. Sounds to me like it should be a big "NO".

 

[LdiJ]

Thanks, Ginny. I was quite surprised to hear him suggest it in our session last night. That's why we're both waiting for our attorneys to review it. Sounds to me like it should be a big "NO".

Your attorneys may not be up on tax law either. Many family law attorneys are not. Child support should be child support, and alimony should be alimony. Otherwise you are playing games with the IRS, even if that is not what you were intending to do.

 

[SopranoKris]

I just put in a call to my SBTX and told him about what I've read on the forums and asked him if he feels the same way I do that this seems to be a big can of worms that's just not worth the potential tax issues with the IRS. If he agrees with me, we'll just tell our attorneys that although the mediator recommended using unallocated maintenance and support, we'd prefer to keep to strictly as child support.

 

[Ohiogal]

Your attorneys may not be up on tax law either. Many family law attorneys are not. Child support should be child support, and alimony should be alimony. Otherwise you are playing games with the IRS, even if that is not what you were intending to do.

Not to mention most attorneys put in their agreements a statement that the ATTORNEY did NOT provide tax advice and suggested or suggests that the client pursues all issues with an accountant.