The CARES Act - Indiana Divorce Law and Child Support

We are surely just at the tip of the iceberg as to how the the Coronavirus Aid, Relief, and Economic Security (CARES) Act will impact Indiana divorces and child support orders. The blog posting reviews the potential implications of the CARES Act.

Individuals & Families

We have all heard that the CARES Act provides a tax rebate credit of a minimum of $600 up to $1,200 per taxpayer, plus $500 per child. These amounts (except the per-child payment) are doubled for filing jointly. However, those who have a reported child support arrearage are not eligible:

“The bill turns off nearly all administrative offsets that ordinarily may reduce tax refunds for individuals who have past tax debts, or who are behind on other payments to federal or state governments, including student loan payments.“The only administrative offset that will be enforced applies to those who have past due child support payments that the states have reported to the Treasury Department.” Source.

Retirement Account to Fund Divorce Payments and/or TO pay Child Support

Accessing retirement accounts, penalty-free may also effect divorced, or divorcing couples and may allow for payment of property settlement buy-outs and child support from retirement accounts. “The CARES Act allows individuals to withdraw up to $100,000 penalty-free from their retirement accounts through the end of 2020. This provision will help individuals who experience financial hardships and disruptions due to COVID-19 to access their own money without penalty.” Source.

Property Settlement, Income and Child Support

The CARES Act provides that net operating losses (NOLs) incurred in 2018, 2019, and 2020 may be carried back to offset taxable income earned during the five-year period prior to the year in which the NOL was incurred. 

The CARES Act also temporarily removes the taxable income limitation, therefore allowing taxpayers to utilize NOLs to offset 100 percent of taxable income in tax years 2018, 2019, and 2020. Taxpayers will be able to carry back the NOL's up to five years and recover income taxes paid in those years. This applies to NOL’s arising in 2018 and 2019, not only 2020. Losses incurred in tax years beginning before January 1, 2018 may be carried forward to tax years beginning after December 31, 2020 without being subject to the 80% income limitation. Source.

Some divorce agreements address how amended returns are handled. Typically, this comes in form of an agreement as to how to deal with additional tax owed, but here the possibility of a significant tax over-payment (refund) may be more exciting or problematic depending on your perspective. For instance, assume that Husband and Wife were divorced in 2018 and Husband kept a business that has NOL’s in 2020. Then, under the CARES Act he amends the 2018 return resulting in a refund. Should Wife share where the agreement indicates that all prior year refunds and/or obligations would be shared equally? At first blush, yes, but if the NOL’s are based on 2020 losses, then the answer maybe no, because the Husband in this example took the business free and clear and therefore allowing Wife to share in the refund - when it is based on 2020 NOL’s - maybe be contrary to the overall property division.

Also, Child Support….the concept of NOL’s being applied retroactively to prior year returns could affect child support matters as well. What if a child support order was based on the Payor’s income derived from a business and the application of the CARES act will allow the Payor to amend returns for prior years and reduce his losses for 2020. Potentially, this could allow the child support Payee to ask the Court to modify the support order as a result of the application of the NOL’s on the Payor’s income.

To discuss this please contact me. To see all of my postings on this topic search here. 

A Parenting Referee? Parenting Coordination Added to The Indiana Parenting Time Guidelines

On September 2, 2016, the Indiana Supreme Court amended the Indiana Parenting Time Guidelines to include Section V., Parenting Coordination.   Section V defines parenting coordination as "a court ordered, child-focused dispute resolution process in which a Parenting Coordinator ("PC") is appointed to assist high conflict parties by accessing and managing conflicts, redirecting the focus of the parties to the needs of the child, and educating the parties on how to make decisions that are in the best interest of the child."

Parenting coordination has existed in Indiana for a number of years, but until now there were no court-adopted rules to govern how the parenting coordination process worked or who may serve as a PC.  

Among other details Section V, includes: 

• A PC must be court-ordered and is for 'high-conflict parties';
• Section V only applies to appointments made after January 1, 2017, and does not modify an existing parenting coordination order; 
• A PC shall be a registered Indiana Domestic Relations Mediator, with additional training or experience in parenting coordination satisfactory to the court making the appointment;  
• The court may with consent of the parties, or on its own motion, appoint a PC when it is in the child’s best interest to do so; however, when the court on its own motion appoints a PC without the consent of both parties, the order a must include a written explanation why the appointment is appropriate; 
• An initial term of appointment shall not exceed two years. For good cause shown, the court may extend the appointment; 
• The court may terminate the service of the PC at any time upon finding that there is no longer a need for the services or for other good cause; 
• The role of the PC includes: assessing the family and the litigation history; educating the parties as to the impact their behavior has on the child;  facilitating conflict management; and assisting the parties in the development of parenting plans and alternative resolutions to other disputes;
• If the parties are not able to decide or resolve disputes on their own or with the suggestions of the PC, the PC is empowered to make reports or recommendations to the parties and the court;
• PC recommendations, which are not agreed to by the parties, may be submitted by the PC as a written report to the court for consideration, and report shall include an explanation as to how the recommended change is expected to benefit the family as a whole. 
• Communications made as part of parenting coordination, are not be confidential except as provided by law.
• Section V does not create a privileged or therapist-client privileged communication.

It is important to note that Section V is not effective until January 1, 2017.  

To review the Order of the Supreme Court adding Section V click here.

To discuss this further please contact me.  

Fee Shifting Post-divorce - Will he pay My Attorney Fees? Indiana Divorce Law 2015

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It seems fair that if one parent files a custody or child support modification against the other parent and ultimately fails, then the failing party should pay the attorney fees.  After all, they picked the fight and lost.  Therefore, they should have to pay, right?   To deal with this parties (advised by their attorneys) usually include contractual fee-shifting provisions in their divorce settlement agreements, and in paternity decrees.    

Well, maybe these contractual agreements are not binding on the trial court.  In the Capellari divorce  appeal, the Court of Appeals upheld the trial court's refusal to award fees, despite a fee-shifting provision it had previously approved and made part of its orders. 

The fee-shifting provision stated:

In the event that any action is filed with regard to this Agreement, the unsuccessful party in the action shall pay to the successful party, in addition to all sums that either party may be called upon to pay, a reasonable sum for the successful parties [sic] attorney fees at the discretion of the court.

Despite this, in Capellari, the unsuccessful moving parent was not ordered to pay the prevailing parent's attorney fees.  Why not?  How would a rule that fees be paid by the losing party not be a good policy? 

The Court of Appeals explained that it is concerned about justice being accessible by all, not just the ones who can afford to lose.  The entire reasoning of the COA is worth reading:   

We write further today, however, to express concern with fee-shifting provisions in agreements related to child support and parenting time in light of our state’s public policy. Our statutes provide that a trial court may, in its discretion, order the payment of attorney fees in litigation concerning the enforcement or modification of parenting time orders. Ind. Code § 31-17-4-3; also I.C. § 31-15-10-1 (pertaining to attorney fees in initial dissolution proceedings). Such statutory provisions have as their purpose ensuring that “a party, who otherwise could not afford an attorney in connection with dissolution proceedings, have access to an attorney’s services by providing that the other party is responsible for paying the attorney fees.” Beeson v. Christian, 594 N.E.2d 441, 443 (Ind. 1992). Unlike the statutory scheme, fee-shifting provisions in contracts generally serve not to ensure access to the courts, but rather to ensure that the prevailing party in a contract dispute is made whole. Walton v. Claybridge Homeowners Ass’n, Inc., 825 N.E.2d 818, 825-26 (Ind. Ct. App. 2005).  The purpose of fee-shifting provisions in the typical contract matter may contrast unfavorably with the public policy of this state with respect to the rights of children to a relationship with both parents, and to child support. The Indiana Supreme Court has long held that “the right of parents to visit their children is a precious privilege that should be enjoyed by noncustodial parents.” Perkinson v. Perkinson, 989 N.E.2d 758, 762 (Ind. 2013). Children are not “to be treated as nothing more than a bargaining chip.” Id. at 765. Accordingly, the Perkinson Court held that “an agreement to contract away a child’s right to receive parenting time … must also be held as void as a matter of public policy.” Id. The Indiana Supreme Court has also held that child support is duty owed by a parent to a child. Schwartz, 994 N.E.2d at 1107. Thus, child support is not subject to the same negotiation and agreement as other civil matters. Id. The fee-shifting provision at issue here, construed as Mother suggests, would serve to penalize any unsuccessful effort at the modification of parenting time or child support. This outcome creates a significant disincentive for parents to seek additional parenting time with their children, and seems at odds with this state’s public policy concerning the primacy of the best interest of the child with respect both to parenting time and child support. See id. at 1107. Here, however, the trial court was within the law and its discretion in interpreting its own order and reaching its conclusion denying Mother’s request for attorney fees.

What does this mean for fee-shifting provisions?  Are they null and void?  Not necessarily.  It is not hard to imagine a different result if the dispute was not over child-related issues.  If the fees were incurred over a property issues from a divorce agreement the same policies would not be involved. However, it seems safe to conclude that where custody and support are involved the trial court is not contractually bound to order fees be paid to the prevailing party. Rather, despite a fee-shifting provisions, the trial court retains its discretion.

To discuss this further please contact me.