The novel coronavirus has introduced some novel issues for family courts to address in 2020. Do parents have to exchange the children during this health emergency? With child care facilities largely closed, if one parent ends up caring for the child for more of the time during the day thereby incurring additional expenses feeding the child, helping with online schooling, and the like, are child support orders affected?
Those are just a couple of issues that we have helped divorced/divorcing parents (and unmarried couples with children) navigate during this time. The most recent issue concerns the stimulus payment that most people are now receiving from the federal government. What is the rule for which parent gets the $500 stimulus payment for children?
That question would imply there is a specific rule, which is not always the case in family court. Black and white answers do not always exist, and judges can view the same issue in different ways.
Note: it is important you consult with your CPA or tax advisor about this issue. Nothing you read in this post is tax advice. Here is a link to the online tool created by the IRS to check the status of your stimulus payment: https://www.irs.gov/coronavirus/economic-impact-payments
Take this example: a couple with one child was divorced in 2019, and the last tax return on file with the IRS for either parent was a joint 2018 return which included the bank account information for a joint account that the father kept after the divorce. Recently, father saw that $2900 was deposited into that account ($1200 for each adult and $500 for the child). Does dad get to keep the money?
Most judges will likely find that dad should immediately transfer $1,200 to mom for her portion as an adult. Regarding the $500 payment for their kid, several options exists:
Equally divide the $500 (each parent receives $250) to assist with raising the child during the pandemic;
Allow the parent who provides the primary residence for the child (sometimes called the “custodial parent” or “primary residential parent”) retain the entire $500;
Divide the stimulus check for the child in proportion to the amount of parenting time each parent has (so, if mom has the child 75% of the time and dad has 25% of the time, mom would receive $375 and dad would receive $125) (this was the ruling of an Indiana judge recently in a telephonic hearing);
Allocate the $500 based on analyzing each parent’s qualifying income – there are phase out limits where one may not qualify for any stimulus payment under the new law. If dad would qualify based on IRS rules but mom would not, allow dad to keep his and the child’s stimulus payments;
Allow one parent to keep the entire amount to in full or in part count as a credit towards back child support or an arrearage on medical expenses;
Award the stimulus payment to the parent who most recently qualified to claim the child for tax purposes (formerly known as claiming the child as a dependent and under current tax law known as claiming the child tax credit on the first page of the parent’s tax return) as outlined in the parties’ divorce or custody agreement or decree.
The CARES Act is the recent law that brought this issue to light. Courts may look to the actual language of the law (found at www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf) and its reference to “qualifying children” as defined by the Internal Revenue Code 152 in deciding where stimulus money for children was intended to land. Under a strict reading there, parties sharing 50/50 custody of the child may be ordered to split the payment, but a non-custodial parent who received the stimulus just because he or she was entitled to claim the child during the last tax season (or just because that parent’s bank information was on the last return on file with the IRS) would need to provide the money to the custodial parent.
We have seen some parents rushing to file their 2019 return in hopes that the IRS will use that updated information instead of what appeared on their 2018 tax return. Other parents may be holding off on filing their 2019 return if they made too much money to qualify for a stimulus payment based on their 2019 income. Many couples who have divorced in the past few years and/or couples who have a joint return on file with their ex-spouse may be affected by this. Couples with a single/head of household return filed may also be affected due to the IRS not automatically sending $250 to each parent. The fact that the 2019 tax filing deadline has been extended to July 15, 2020 should also be considered in assessing how many of these disputes may play out in local divorce courts over the coming months in 2020.
Parties would be wise to consult with their tax advisor or accountant as it is expected parties will have to account for the amount received on their 2020 tax return. Does that provide courts with another factor to analyze – is the stimulus payment really an advance on the 2020 tax situation?
It is likely that parents will see mixed results depending on the specific judge assigned to their case. Getting an answer is complicated by the fact that most courts are not operating as normally right now and a hearing may not be an option for months. Litigants must also take into account the attorney fees incurred in arguing over a $500 payment for a child. If other issues are pending, however, this topic could easily be raised.
If the parties did not provide bank account information on their last filed tax return and are in line for a paper check, that may allow the funds to more easily be escrowed for the parties to agree or the court to decide on who ultimately receives what. The paper check option may also be invoked if the bank account information listed on the parents’ last filed tax return is now outdated because that account was closed as part of their divorce settlement.
We are continuing to help clients in virtual mediations and settlement conferences while family courts are mostly closed. Feel free to contact our family law attorneys if you would like to discuss this or other issues that parents are encountering due to COVID-19.