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 AAML NJ Blog


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  • 3 Jun 2019 8:06 AM | Kirsten Peterson (Administrator)

    By Amanda S. Trigg of Cohn Lifland Pearlman Herrmann & Knopf LLP and originally posted in Family Law on Monday, April 29, 2019.

    If money was a person, how would you describe your relationship? Is friendly, or marked with tension and anxiety? In family law, we deal with that connection constantly, as we discuss alimony, child support, equitable distribution of assets and debts. Every family has its own method of managing assets, debts, expenses. When spouses divorce, it frequently comes to light that they had dramatically different ideas about money. Money might have caused strife, even if there was plenty to go around. Discussions about dividing assets and debts, and making appropriate arrangements for the support of the whole family, forces husbands and wives, mothers and fathers, to consider how they have acquired, spent and saved their money, and how they think they should be entitled to spend or save it in the future.

    Educating each client about economic rights and responsibilities in a family law case takes time and careful attention to personal financial details. When one party owns a business, the details matter a great deal because it is not always simple to determine the value of that business, or the full economic benefit that the family unit obtained from the business income. When family wealth passes between generations, perhaps both spouses do not have the same claims to those funds when dividing marital assets.

    Generally, all assets and liabilities acquired during the marriage can be divided as part of the divorce process. Important exceptions include inheritances and gifts received by one party from someone other than the spouse. Businesses owned or operated during the marriage, however, are (at least partially) joint assets regardless of which spouse is actually named as an owner or worked at the business. This frequently baffles the business owner, whether she is a professional, an entrepreneur, a franchise owner or self-employed in any capacity. We often hear an objection that the business does not have value, because "without me" it is "worthless." Business owners often produce an income tax return as proof of his/her income, usually without realizing that in Family Court we look far beyond the first-page declaration of "adjusted gross income" when the taxpayer is self-employed.

    Lawyers quickly learn about each client's perspective, and each business owner's relationship with money. We use that starting point to teach the client about how the divorce court views businesses and business income.

    Sometimes, the business owner correctly asserts that his/her operation lacks any value independent of personal efforts and the revenue generated by those efforts. More likely, from the perspective of the divorce court, the business operation has a value that someone else might pay to acquire, based upon the market value of that business (e.g. a franchise), the value of the future income stream (e.g. a professional services company like a law firm or medical practice) or the value of the assets held by the business (e.g. a real estate holding company). A profitable or asset-rich business probably has a value that can be calculated by a valuation expert and that value becomes another asset on the marital balance sheet. How to divide that value, or compensate the non-titled / non-owner spouse for his/her share of the value, is a topic for a future blog.

    For anyone who requests, or who might have to pay, alimony or child support, we total income "from all sources". There can be a drastic but legitimate difference between the amount of a business owner's income that is taxable and the amount of total income that the court will consider for purposes of alimony and child support. For example, business owners frequently and reasonably deduct automobile, cell phone, some meals / entertainment paid through the business. To the extent that these payments defray personal costs, the value of the benefit to the business owner can be added into taxable income when calculating support payments. More technically, some perfectly acceptable tax deductions, like depreciation on assets, do not actually reduce a business owner's cash flow, and might also be added into taxable income. The complexity increases if there are questions of whether all receipts were actually reported to the taxation authorities.

    Earning, spending and sharing money can be complicated. If you own your own business, and have questions about how it will be discussed in your divorce, alimony or child support case, the expert lawyers in the New Jersey Chapter of the AAML are available to talk if you are not sure about your own agreement or your own options.  Find one of us near you by using the search function on this website.  

    *****

  • 26 Mar 2019 11:56 AM | Kirsten Peterson (Administrator)

    By: John P. Paone, Jr., Esq. and John P. Paone, III, Esq.

    On January 1, 2019, new federal tax laws were ushered in, as part of the Tax Cuts & Jobs Act of 2017, which have revolutionized the financial landscape for divorcing parties.  The most dramatic change is the elimination of the federal income tax deduction for individuals who pay alimony.  This also means that persons receiving alimony will no longer have to declare these payments as income – thereby making the receipt of alimony tax free.  It is important to note that this new change in tax law only affects alimony awards entered after December 31, 2018.

    The result of alimony now being non-tax deductible is that ultimately more tax dollars are being clawed back by the federal government. This is because the spouse who pays alimony will not be able to claim alimony as a tax deduction and will likely pay taxes in a higher income tax bracket compared to the spouse who receives alimony.  The net result of this is that there will be less available after tax dollars between the households in order to meet financial obligations such as alimony, child support, and college. 

    So what does the elimination of the alimony tax deduction mean for divorced parties in actual dollars?  The following example will demonstrate the impact of the change in the tax law:  Under the old tax laws, a spouse who was required to pay alimony in the amount of $1,000.00 per month and was in the 35% tax bracket in effect only paid $650.00 per month after taxes ($1,000.00 - $350.00 tax deduction = $650.00 net payment).  The spouse who was the recipient of the alimony and was in a 20% tax bracket would only owe $200.00 per month in taxes leaving the recipient of alimony with $800.00 in net dollars ($1,000.00 alimony - $200.00 tax = $800.00 net payment).  Therefore, through the benefit of an alimony tax deduction, the payor paid $650.00 in net tax dollars while the recipient received $800.00 in net tax dollars.  The difference of $150.00 was effectively subsidized by the federal government.  The loss of this “divorce subsidy” will inescapably mean that alimony payors will pay more and alimony recipients will receive less in future alimony awards.    

    Although alimony payors will no longer be able to deduct their payment of alimony on their federal income tax returns, they will still be able to claim alimony as a deduction for state income tax purposes in New Jersey. Similarly, spouses who receive alimony will still be required to report alimony as income on their New Jersey State Gross Income Tax Returns. This is because New Jersey law continues to provide for the deductibility (and therefore taxability) of alimony payments.  It remains to be seen, however, whether over time New Jersey will adopt the provisions regarding alimony that have been enacted under the Tax Cuts & Jobs Act of 2017, to make the tax treatment of alimony in New Jersey consistent with federal law.    

    Divorcing spouses should also understand that while there may be less money for support between the households, there remains no exact formula or percentage for how an alimony obligation is calculated.  Family courts are required to review the statutory criteria which references 14 factors that must be considered in rendering an alimony award.  Among these factors (such as actual need and the ability of the parties to pay) includes “the tax treatment and consequences to both parties of any alimony award.”  Therefore, even in the new world of non-tax-deductible alimony, the court must continue to examine what each party will be left with in after-tax dollars in order to calculate a proper award of alimony.

    It is imperative that spouses going through a divorce who will either be paying or receiving alimony be aware of the new federal tax law and inevitably, the impact it will have on their case.  If you are going through a divorce, you should confer with an experienced family law practitioner regarding the new tax change.

     *****

    John P. Paone, Jr., Esq. and John P. Paone, III,  Esq. are divorce and family law attorneys with the Law Offices of Paone, Zaleski & Murphy, with offices in Red Bank and Woodbridge. 


  • 4 Feb 2019 2:16 PM | Kirsten Peterson (Administrator)

    By John P. Paone, Jr., Esq. and Victoria E. Paone, Esq. 

    Americans have a love affair with pets. According to a recent survey, “three-fourths of Americans in their 30s have dogs, while 51 percent have cats.” It is not uncommon for people to spend thousands of dollars per year on pet clothing/accessories, food, photographs, medicine and the like.  But what happens to “Fluffy” when parties go through a divorce?

    Under the common law, pets were treated as chattel-put another way-just a typical piece of property to be distributed like an automobile or a piano. In today’s world, however, there is a growing consensus that pets are more like family members and less like property.  New Jersey courts have mirrored this sentiment and the leading case on this issue demonstrates that disputes over animals during divorce litigation can no longer be resolved by using basic property principles. In a case decided by the New Jersey Appellate Division, the court held that reimbursing a party for a dog's monetary value (i.e. what you paid for the animal) is not an adequate remedy for purposes of compensating a party for the loss of the “special value” that some pets hold to their owners. That’s right, the court decided that money cannot resolve all problems even in the context of divorce litigation!  

    This case further stands for the proposition that courts can and should determine which party has a “sincere” interest in possession of the pet and which party is merely asserting an interest in the pet “out of greed, ill-will or other sentiment or motive similarly unworthy of protection in a court of equity.” In determining whether a party or whether both parties have a true and equal interest in their pets, the court directs that focus should be placed on establishing “the facts and circumstances which endow the chattel with special…value.”

     Most commonly, the court will consider testimony and other proofs from parties demonstrating which party acts as the primary caretaker of the pet. Meaning, the court can contemplate who “potty trained” the animal, takes the animal to medical and grooming appointments, feeds and bathes the animal, etc.  In addition, the court can consider whether a party had possession of the animal prior to the marriage.  Furthermore, the court can examine where the children of the marriage primarily reside and deem whether it is in their “best interest” to enjoy the animal’s companionship at their primary place of residence.

    Less compelling factors that a court might also consider when determining possession of a pet is the party who is the title owner of the animal and if a certain party made the preliminary investigations or took the initial steps to acquire the pet. At this time in New Jersey, the test is not what is in the “best interest” of the pet.  However, that may soon change based upon experiences in other jurisdictions.

    On September 27, 2018, the Governor of California, Jerry Brown, signed into law Assembly Bill 2274 which provides for the courts to “assign sole or joint ownership of a pet animal taking into consideration the care of the pet animal” in the context of a divorce case.  Considering the “care” of a pet is akin to considering the “best interest” of a child when determining custody.  Assemblyman Bill Quirk, who introduced the law, said “it’s time family pets received the status they deserve — family members.” This law takes effect January 1, 2019. 

    It remains to be seen how New Jersey law will develop over the next few years regarding this very important issue of pet custody in divorce cases. Although the interpretation of pets as more than basic “chattel” is a fairly recent development in the law, it would not be surprising should New Jersey go the way of California and adopt a standard akin to that used for deciding child custody.   In the interim, pet owners who are about to go through a divorce should consult with an attorney about how to pursue legal rights and remedies regarding custody and possession of Fluffy in a matrimonial action.   

    *****

    John P. Paone, Jr., Esq. and Victoria E. Paone, Esq. are divorce and family law attorneys with the Law Offices of Paone, Zaleski & Murray, with offices in Red Bank and Woodbridge.  


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