Coronavirus Reality Checks: Surviving Divorce or Separation during the Pandemic

Marilyn B. Chinitz

Amid these unusual times, everybody has on their minds the ripple effects of COVID-19 because we know it has infected everything. Divorcing individuals are not immune. Those contemplating and those in the middle of divorce need to know that COVID-19 will impact their lives in previously unimaginable ways. It will affect your marital estate, investment portfolio, real estate, retirement assets, business assets, and your most important asset—your children.

Underlying conflicts often emerge when couples are together in close proximity of each other for long periods of time. The abrupt and drastic lifestyle change of staying home may have caused more harm than good for couples already dealing with conflict in their marriage. Social distancing, working from home, having limited mobility, and caring for children full time without traditional support systems have become the norm, and it seems that it’s going to be for the foreseeable future. While quarantine is hard on everybody, it’s even harder on those whose marriage have already cracked. It’s not COVID-19 that’s ruining your marriage, but it can cause a divorce to happen a lot sooner.

In my recent webinar, Lunch & Learn: Successfully Navigating Divorce and Separation Amid COVID-19, I was joined by the dynamic family therapist Dr. Kathryn Smerling as we highlighted potential solutions and strategies for unprecedented financial issues, custody and visitation, and family mental health during these challenging times.

If you’re considering divorce, you must examine your options and have reality checks:

Reality Check #1 ‒ Assemble Your Team

While everybody is at home there is an opportunity to contact different attorneys, speak to them, and do your research. Given that a lot of people are working from home and practicing social distancing, you have more time to do your research online, including looking into potential divorce attorneys, therapists, financial experts, and financial advisors.

Whoever ends up on your team, it takes a village to successfully navigate your way through a divorce. You must work collaboratively with your team to decide which battles are worth fighting and what is best to let go of.

Reality Check #2 – Obtain Financial Records & Know Your Financial Picture

A significant part of divorce hinges on dividing assets. Because most of us are home more often than ever now, your spouse is likely at home working as well. Chances are the mail that was going to the office is coming to the home. That mail could include brokerage account statements, financial statements, and other financial documents that are now being sent to your home.

This is an opportunity.

Don’t view it as being a snoop. Instead, look at it as becoming educated on your own financial situation. This is an appropriate time to learn your income from all sources, what debts you have, and get familiar with your expenses. Look for bank statements, canceled checks, credit card statements, tax returns, and life insurance policies. Remember that you’re free to open the mail when it’s addressed to you. And in some cases, go into your spouse’s home office, and even before uttering any word about “divorce,” say you’re concerned because there’s a pandemic going on and want to know what we have.

Reality Check #3 – Get Acquainted with a Forensic Accountant & a Financial Wealth Manager

Couples who are contemplating a divorce or are in a middle of one, have a lot of questions about the COVID-19 economic crisis’ impact on support requirements, property division, and the valuation of assets. Virtually every individual worldwide who has money invested in the markets has now seen their accounts fluctuate dramatically from the February 2020 high (on Valentine’s Day, believe it or not).

Uncertainty will be ongoing, causing values to seesaw for a very significant time and making it difficult for attorneys to predict exactly what’s going to happen. There’s no question that negotiating your financial settlement during this turmoil is going to get more difficult and complex. For business owners, timing may be important in asking for appraisals while those assets have lower values, but they will also have resources available such as the Paycheck Protection Program and Federal Reserve lending programs.

Markets have historically bounced back from deep declines, so we need to brace ourselves for a significant period of low valuations before the markets fully recover. However, like everything else, this is an opportunity for rebalancing and tax planning opportunities. Find the best financial experts you can if you want to maximize the amount you will walk away with in a divorce.

Reality Check #4 – Expect Modifications Aplenty Going Forward

In the post-COVID world, I anticipate there will be more custody and support modifications. There will likely be quite a few cases where a modification of custody will be justified when a parent has intentionally withheld a child from their ex-spouse. In pending cases, where an ex-spouse may have lost income, there will be support modifications. It’s important to realize that merely losing your job doesn’t mean you’ll be entitled to a downward modification of support and relief from your obligations. If you have other assets sitting somewhere, you’ll be required to use those them to support your children. Many valuations will likely need be redone as well.

And as courts begin to emerge with large backlogs, there are opportunities to work collaboratively with other attorneys. With difficulties getting judges on the phone, instead attempt to first work out the issues that come up with other attorneys. Given the backlog, judges won’t want to hear mundane issues—only important things impacting peoples’ lives.

I invite you to watch and share the recording from the recent webinar for further details on these vital topics and concerns, and to hear Dr. Smerling’s perspectives on handling pandemic anxieties and difficult situations involving children during these treacherous times. Contact me if you have questions about navigating the challenges of separation or divorce amid COVID-19.

Please click here to listen to the recording of our Lunch & Learn webinar.

It’s All About Control

Stacy D. Phillips

As a family lawyer specializing in high net worth and high profile cases for more than 35 years, you can imagine that I have seen it all. Representing many celebrities—often involving complex, high conflict matters—I have observed that whatever the salacious headlines, particular facts, and circumstances of each case, there is one important commonality: control.

It is a given that every case I handle will have its share of “issues,” many of which go beyond the division of assets. Frequently, some urgent situation or chronic problem creates a dispute involving the need/desire/obsession of one party to dominate the other. Neither gender has exclusivity when it comes to pursuing, possessing, and asserting control, whether during the marriage, the divorce, or its aftermath. The reality is: Control is prevalent in any relationship. And, when couples are jockeying for it, a legal case becomes a contest. All too often, contests escalate to wars because, by nature, human beings are competitive. Continue reading

Should You Rush to the Finish Line?

Stacy D. Phillips and Michelle Piscopo

With news that the alimony deduction will expire at the end of this year, many clients are asking if they should rush to finalize their divorce. The answer to that question is, it depends.

The 2017 Tax Cuts and Jobs Act (the “TCJA”) made sweeping changes to the tax code and one of the most unexpected was the elimination of the alimony deduction. The alimony deduction had been part of the Internal Revenue Code for the last 75 years and allowed the higher income spouse to shift part of the tax liability on his/her income to the lower income spouse. This shifting of tax responsibility resulted in more after-tax income to allocate between the two households.

Under the TCJA, for any divorce or separation agreements or court orders entered into after December 31, 2018, the party paying alimony will no longer receive a deduction and the party receiving alimony will no longer have to report it as income. For divorce or separation agreements or court orders that are modified after December 31, 2018, the alimony deduction will not be allowed unless the modification expressly states that the TCJA does not apply. There is concern that, without the alimony tax deduction, there will be less incentive for the higher income spouse to pay alimony at a rate that will enable the lower income spouse to support his/her own household.

If you are the party receiving alimony, you might initially think it’s a good idea to wait to finalize your divorce because you won’t have to pay taxes on the alimony payments. Think again. If the tax liability remains with the party earning the income, his or her net income will be lower which translates to a lower alimony payment. While you will avoid tax liability for the payments, the reality is that the amount of alimony you receive will likely be lower than the amount you would have netted if you received the larger payment and paid the taxes on it.

Parties that are in a position to resolve their divorce cases before the end of the year should certainly try to do so in order to take advantage of the alimony deduction. However, if you are not in a position to finalize your divorce, but you have a temporary support order in place, don’t panic. You still have the option of opting out of the TCJA provision when the final order is entered.

Ch-ch-ch-Changes! Preparing for Trump’s Tax Code Reforms

Michelle Piscopo and Mary Vidas

Donald Trump was sworn in as our country’s 45th President on January 20 and, prior to his inauguration, he vowed to immediately set into motion many of the promises he made during his campaign. One of the promises made by President Trump during his campaign was to reduce taxes across the board—especially for working class and middle class Americans.

Currently, there are seven different individual tax brackets ranging from 10% to a maximum of 39.6%. Under the plan proposed by President Trump, there would only be three tax brackets:

  • 12% for individuals earning less than $75,000;
  • 25% for individuals earning more than $75,000 but less than $225,000; and
  • 33% for individuals earning more than $225,000

President Trump’s plan also proposes raising the standard deduction from $6,350 to $12,000 for single tax filers and from $12,700 to $30,000 for joint tax filers, and eliminating the head of household tax filing status. Under President Trump’s plan, the corporate tax rate would be reduced from 35% to 15%.  While Trump alone cannot change the tax code, the proposal put forth by House Republicans is quite similar to the Trump proposal. The House Republican plan agrees with Trump’s three tax brackets—so changes in tax rates are inevitable.

How will this impact you?

Lower taxes means higher net income. And, that higher net income could impact you if you are paying or receiving child support, spousal support, maintenance, or alimony. For example, under the current tax code, an individual who earns $500,000 per year would be in the 39.6% tax bracket, which results in net income of $302,000. Under President Trump’s proposal, an individual who earns $500,000 would be in the 33% tax bracket, which results in net income of $335,000. That additional $33,000 of net income will impact your support calculation. Depending on whether you are the party receiving support or the party paying support, this could be good news or bad news. We expect quick changes from the new administration and are keeping a close eye on any changes to the tax code. As this issue develops, if you have any questions about how new tax laws could affect your support order, the attorneys in all states of our matrimonial group are prepared to answer them.