All divorcees who have children must address the important topic of child support at some point. Like most states, Massachusetts has child support guidelines in place which judges are required to apply, unless the parties have mutually agreed on another approach that provides the same degree of protection (at a minimum) for the children.
Through Mediation or Collaborative Practice, a divorcing couple can be more creative about how they wish to handle meeting their children’s ongoing needs. Before they get to that point, however, they must do the necessary preparation to allow themselves and their advisors to make informed decisions.
Here are some practical steps that can be taken to prepare:
Pull Together All Documentation Surrounding Income.
Before a decision can be made about a child support agreement, a couple must gather all their W-2s, pay stubs, tax returns, profit and loss statements (for those who are self-employed), and 1099s to reflect any additional income from investments, consulting, or freelance work. All of these documents will be used to come up with an accurate assessment of income sources.
Examine the Budget.
If a couple is using litigation as the route to their divorce, their budgets will be part of the required financial statements. But interestingly, these budgets are often not actually considered by a judge when determining child support. This is partly because people can manipulate their budgets. One person may spend a lot of money on certain items, for example, while another may spend little or nothing on them. Everybody has choices as to how to spend their money and what they consider to be priorities.
The same holds true for payroll deductions. In some cases, these can be discretionary. For this reason, in Massachusetts gross payroll wages (not net) are used in determining income.
To accurately determine their budgets, I usually recommend that my clients download the long form version of the MA Financial Statement. While this is technically only required for those who make more than $75,000 a year, the long form provides much more detail than the short form, and enables divorcing couples to compare “apples with apples” by using the same form.
There is one universal truth when it comes to divorce: when you divide one household into two without increasing income sources, there is usually not enough money to go around. It is therefore essential for both parties to be honest about reporting their budgets rather than unnecessarily inflating them, as money is already going to be a tight squeeze.
To find a common ground that is best for their children, parents should establish priorities. Using Mediation and Collaborative Practice during a divorce allows a couple to figure out the best way to stretch their dollars by being flexible and willing to make sacrifices. For example, they may decide that instead of having gym memberships, each will buy a treadmill or exercise DVDs. They may also find a way to make other sacrifices to allow their kids to maintain as much stability as possible.
Consider Tax Implications.
Various tax labels have different tax consequences. Alimony, for example, is considered a deduction for the payor but is taxable for the payee. Child support, on the other hand, is considered taxable to the payor but is not included as income for the payee.
The way that payments are characterized for tax purposes can make a difference. When using Mediation and Collaborative Practice to negotiate, couples often have more options available as to how they can characterize their payments within Internal Revenue Code requirements.
A person’s marital status for tax purposes is determined on December 31. If your divorce is final at that point, you can either file as single or head of household, depending on the number of children and your parenting arrangement. While this is only a relevant issue for the first year after a divorce, it is something people do occasionally negotiate, often choosing to time their hearing so they either are or are not divorced by December 31.
Dependency exemptions are another tax consideration. The decision of who can claim the children for tax purposes can be negotiated in an effort to help to stretch dollars by maximizing tax benefits. Some divorced parents alternate years, for example, while others split up the kids between themselves.
In summary, it is important to do your homework at the beginning of the process, and be honest and realistic about your budget. Parents who are willing to be flexible and sacrificial will be more successful in creating a solution that is best for the children. Parents only have more creative options if they negotiate using alternate resolution tactics such as Mediation or Collaborative Practice. They lose many of those options if a judge steps in to make a decision.