Child Support - Non-Custodial Parent

[Max W]

Client receives $4500/m "Child Support" for three children who live with custodial parent.

This is something the attorneys dreamt up and looks to me like an attempt to 

circumvent calling it alimony.  

Ex-wife is very wealthy and client is struggling with business.

Has anyone run into something like this before?

 

[Cathy]

Ditto....almost to the exact dollar amount.  You would think some attorneys are working for the ex!!  Problem is this:  if your client doesn't meet his child support payments, he can be arrested.  If he makes every payment, then he isn't struggling in his business and is hiding income the ex's attorney will say!  It's a no win situation for your client.  Willing to bet no Form 8332 was signed (or similar document to have the same elements of the 8332) giving your client the right to claim the children!

Your client needs a new attorney....one who realizes even temporary alimony is better than $4500 in child support.  

[Gail in Virginia]

Not sure I have this straight:  Your client is receiving  child support, but is not the custodial parent?  That doesn't make sense unless it is disguised alimony.  But if he is the recipient,then he doesn't pay taxes on child support, and ex cannot deduct the payments.  I agree with Cathy's points, but she is reading that your client is paying the child support I think.  I usually have clients paying child support who want me to treat it as alimony.  Your situation is a new one on me.

[Max W]

Update!

Spoke to client yesterday, and he says that all the money he receives goes to paying certain expenses

for the kids, mostly private school tuition. He keeps track of the expenses and keeps nothing for himself.

I still think that the IRS would construe the money he receives as alimony.

I'm still scratching my head over why the atty would set this up.  But then atty's and taxes is not a good mix - as we all know.

[mcb39]

Update!

Spoke to client yesterday, and he says that all the money he receives goes to paying certain expenses

for the kids, mostly private school tuition. He keeps track of the expenses and keeps nothing for himself.

I still think that the IRS would construe the money he receives as alimony.

I'm still scratching my head over why the atty would set this up.  But then atty's and taxes is not a good mix - as we all know.

After reading your update, I would consider it to be child support and non-taxable to your client.

[Cathy]

Max,

Gail was correct...I misread your post.  I did think your client was paying rather than receiving the support.  So much for speed reading!

If it was my client, I'd ask for the legal documents that state your client is receiving child support.  The document might very well state he is to be paid alimony, but your client considers it child support as he turns around and pays the tuition, etc.. for the kids.  I just can't see the custodial parent paying child support to the non-custodial parent.  Stranger things have happened, I know, but I would want to verify that my client isn't receiving taxable income in this case.

[mcb39]

Max,

Gail was correct...I misread your post.  I did think your client was paying rather than receiving the support.  So much for speed reading!

If it was my client, I'd ask for the legal documents that state your client is receiving child support.  The document might very well state he is to be paid alimony, but your client considers it child support as he turns around and pays the tuition, etc.. for the kids.  I just can't see the custodial parent paying child support to the non-custodial parent.  Stranger things have happened, I know, but I would want to verify that my client isn't receiving taxable income in this case.

I, also, mis-read the original message.

[Catherine]

For the most part, (and you *must* read the docs to be sure) anything that is tied specifically to child expenses and/or expires when a child reaches a specific milestone (age 18, graduation from high school, leaves the private school, whatever) is considered child support.  Alimony can NOT be tied to child milestones.  But I am not a lawyer and don't even play one on television - and these things can change from state to state, as well.  So check with an in-state attorney and check those court documents!

[RitaB]

Or, you could just explain that he needs to be sure, then if he insists it's child support, go with child support.  If it's not, you'll find out, and be sure to charge for reading the five-page letter from IRS.  And charge to check the IRS calculations.  Maybe just do an amended return to be sure IRS considered everything.  Yes, I'm being a little facetious, but if he's telling you wrong, he's sure to get caught cause she's deducting it and providing his name and SSN, so I might just take lay low on this one and let the agony of defeat run its course.

Edited August 17, 2015 by RitaB

[Cathy]

Rita,

I understand what you are saying and agree with the extra fees, but I'd still charge the extra fees to review the court documents which I feel sure would show the payments the client is receiving is alimony...and my gut feeling is as Catherine suggested that the "alimony-child support" payments might run out after the children are of legal age, which still wouldn't make alimony taxable income to the client.  However, I'd consider it part of my job I'm being paid to perform is to make sure NOW my client wouldn't get bit in a couple of years.

Seems like someone has cooked up a scheme to deduct private school tuition on a Federal tax return by claiming "alimony".......one local attorney is rather insane with his tax advice to his clients.

Again, this smells fishy and if we can all smell it, I wouldn't want IRS thinking I dismissed (without research) the possibility of taxable alimony payments as child support especially when my client is not the custodial parent.

But either way, the extra fees are in order!  :)

[Max W]

According to court documents. there is absolutely no doubt that the payments are designated as child support and that they terminate when each child reaches 19.

There is no mention in the docs about alimony or spousal support.  

The mystery is why?  Is there some benefit to somebody somehow?

[RitaB]

The lawyer may have the taxability of child support and alimony mixed up.  I corrected an attorney about that one time.  Also had one to tell me there would be no taxable consequence to my client if she cashed her non-retirement account to give cash to her husband in the property settlement.  It was one-third profit!  I told him, no, that's not correct, you just have the judge put hubby's name on the part of the account he gets.

Edited August 17, 2015 by RitaB

[Max W]

Rita, that is not the case. The client was told by the atty that the CS pmts were Not taxable.

[Jack from Ohio]

Child support payments are not taxable and are not deductible by the paying party.  Period, end of statement.  This is not new.

[jklcpa]

 

The odd thing about this is that the custodial parent is paying the noncustodial parent and calling it child support.

If this was their attempt, or their attorney's, at keeping this from being alimony, they certainly didn't have to call it child support. According to tax law, even if it otherwise qualified as alimony, the payments are not alimony for tax purposes as long as they both sign a written agreement or include that in the divorce or separation agreement stating that the payments aren't deductible as alimony by the payer and aren't includable in the income of the recipient.  

The above is for agreements post-1984. Different rules were in place for pre-1985 agreements.

[MsTabbyKats]

If the mom is so rich....and dad isn't....she may also want to make sure he has money to spend for the kids when they visit him.

Mom is happy.  Dad is happy.  Case closed.

 

[RitaB]

Child support payments are not taxable and are not deductible by the paying party.  Period, end of statement.  This is not new.

Nobody here thought anything contrary to this. 

[joanmcq]

I had a client in the exact same situation. Custody was shared but mom had them more, making her custodial parent. Mom made big bucks, three or four times what dad made, plus dad had other kids. Mom pays child support to dad, even though she has more custody. 

[Jack from Ohio]

I just wish that I, as the non-custodial parent, had some rights to be certain that my child support was actually spent on my children.  I paid faithfully and timely for 11  years.  I KNOW she did not spend it on my children like she should have, but was powerless to do anything.

Rant over.

[GeneInAlabama]

If child support is spent for rent, utilities, food, etc. it is also for the children.  It provides a comfortable home for the children.

[Jack from Ohio]

If child support is spent for rent, utilities, food, etc. it is also for the children.  It provides a comfortable home for the children.

Seeing as how my ex always had issues meeting those things, even though she was working as well, is the very basis for my "issue" with how she was spending my child support money.  I spent more money helping keep those things current for my children.  I do not begrudge spending any money to take care of my children.  I just wish there was a device in place to make her as responsible for spending the money as there was to make sure I paid it.

Unless you have been there, you have no idea.

 

[Catherine]

Seeing as how my ex always had issues meeting those things, even though she was working as well, is the very basis for my "issue" with how she was spending my child support money.  I spent more money helping keep those things current for my children.  I do not begrudge spending any money to take care of my children.  I just wish there was a device in place to make her as responsible for spending the money as there was to make sure I paid it.

Unless you have been there, you have no idea.

 

I know people who were the same boat.  Money that was supposed to support the kid instead goes to fancy vacations for custodial parent alone (no kids in tow), fancy clothes, fancy dinners, etc.  Bad-mouthed non-custodial parent terribly, as well (so stingy, doesn't pay what is supposed to pay,doesn't care about you, blah blah).  Agreement was for each parent to pay half of college; one paid half, the other made kid take loans for that half.  

In the end, the kid (now grown and long out of the house) will have NOTHING to do with the spendthrift parent and - after years of estrangement from the other due to believing the bad-mouthing - now has a great relationship.  So it came back to haunt them, in spades.  But it was nasty to go through.

Have heard other nasty stories, as well.  

[Max W]

Catherine, that is not the case here.  All the money the client receives as child support, MUST be spent on the kids and accounted for.

[kcjenkins]

Well, I'll add one possible reason, if the parent getting the child support was given custody, or at least shared custody, and the other parent wants to keep the kids full time, or most of the time, that parent may pay the child support to keep the other parent agreeable to 'giving up' most of his or her time.   I know of such cases.  

[RitaB]

Update!

Spoke to client yesterday, and he says that all the money he receives goes to paying certain expenses

for the kids, mostly private school tuition. He keeps track of the expenses and keeps nothing for himself.

I still think that the IRS would construe the money he receives as alimony.

I'm still scratching my head over why the atty would set this up.  But then atty's and taxes is not a good mix - as we all know.

Well, I'll add one possible reason, if the parent getting the child support was given custody, or at least shared custody, and the other parent wants to keep the kids full time, or most of the time, that parent may pay the child support to keep the other parent agreeable to 'giving up' most of his or her time.   I know of such cases.  

That's exactly what I thought at first, too.  But if dad is spending it all on tuition, he's not getting anything.   I dunno why mom can't write tuition checks.  Maybe dad gets a reduced rate on tuition, and the difference between his rate and mom's rate is really HIS payment to the mom?  Teachers here get a deal on state tuition. Maybe something similar going on here for this private tuition.  I've seen non-custodial parents suddenly become custodial when it comes time to enroll the kiddos in college, complete FAFSA, etc.  It's a miracle.   (Insert heavenly light and sound here.)  I'm with Max.  This is a head scratcher.