Welcome to FreeDivorce.com.
Christina: This is Christina.
Ed: This is Ed. Today, we are going to discuss additional child support issues that we did not cover in the previous child support videos, including life insurance provisions, college education provisions, and a number of other issues.
Christina: What about including a provision in your child support agreement requiring one or both parents to maintain life insurance coverage for the benefit of the children until the children turn 18 years old?
Ed: You may want your child support agreement to include provisions requiring one or both parents to obtain and/or maintain life insurance coverage for the benefit of the parties’ children. If Dad is paying Mom substantial amounts of child support and he dies in a car accident, Mom is going to need money to support the children. Life insurance proceeds can act as a substitute for the child support that evaporated when Dad was killed. The need for life insurance coverage cuts both ways. If Mom is killed in a car accident, Dad will find himself as the sole support of the children. He will have custody of the children 100% of the time. He may have a child care expense that he did not have when his mom was alive. If Mom dies, life insurance proceeds will be there to help pay the cost of raising the children. We are not going to repeat all of the information about life insurance that we already covered in our previous video. If you have not already watched that video, go back and watch the “Getting Educated” video about life insurance.
Christina: What about including a provision in your settlement agreement that requires one or both parents to pay the cost of the children’s college education?
Ed: As mentioned in an earlier video, courts do not have jurisdiction, meaning legal authority, to order parents to pay for the college education of adult children. However, if the settlement agreement states that the parents will share the cost of the children’s college education, then the courts will enforce the terms of that agreement. There is a lot to consider when it comes to college education provisions. Be careful about including a college education provision in your settlement agreement. College can be extremely expensive. It can be difficult or impossible to predict your future ability to contribute towards your children’s college education when the children won’t start college for many years.
Christina: If I want a college education provision included in my settlement agreement, what do I need to consider?
Ed: If you intend to include a college education provision as part of your settlement agreement, you need to precisely define exactly which expenses are going to be shared. Expenses to be shared may include tuition, books, dormitory fees, meal plan fees, admission application fees, etc. Many colleges have an entire assortment of fees that go by various names. What if your child elects to live off campus or what if the college does not have dormitories? Are you and your spouse going to share the cost of your child’s apartment, utilities, groceries, and a monthly allowance? Are you going to pay for college only if your child attends a public college or public university or are you willing to also pay for attendance at a much more expensive private college? Are you willing to pay for college if your child elects to attend college out of state and has to pay non-resident tuition rates? Are you going to pay for just an undergraduate degree or also a graduate degree? Are you going to put an age limit on your obligation (i.e., does your child have to complete college by age 22 or will you pay the college expenses even if your child does not decide to go to college until he or she is 40 years old)? If you and your spouse established a college account for the children during the marriage, who will manage those funds until the children start college? After they start college, what kind of accounting will be provided to the other parent? What if the children elect not to go to college, who gets the funds that were set aside to pay for the children’s college education? You have to give a lot of thought to writing college education provisions.
We have included sample college education provisions in our Marital Settlement Agreement template. The Marital Settlement Agreement template is discussed in a later video.
Christina: Switching gears, one of the questions that come up when talking to clients about child support is the issue of one party not being honest about the amount of their income.
Ed: I understand. What do you do when there is no clear record about how much your spouse earns? Perhaps he or she works “under the table” or is self-employed and is not reporting all of their income or is writing off all kinds of personal expenses as business expenses. You and your spouse have to be honest about the true amount of each party’s income. If one person is not going to be honest, then you are probably not going to have an uncontested divorce and will be looking at a contested divorce, at least with respect to support issues.
If one or both parties are underreporting the amount of their income, there is an incentive for everyone to be reasonable when it comes to making an agreement about child support. If you don’t reach an agreement and the matter ends up in litigation and the court finds out that one or both parties have been underreporting their income on their tax returns, the judge may contact the IRS and an audit may be headed your way.
Christina: After a divorce, what do you do about the issue of which parent is entitled to claim the children as exemptions on their income tax returns?
Ed: Tax laws constantly change. The recently enacted federal tax laws reduce personal and dependent exemption deductions to zero. However, various tax provisions still make reference to persons for whom dependent exemption deductions are allowed (such as the child and dependent care tax credit; educational tax credits; etc.). Exemptions are still valuable, but not as valuable as they used to be. Your settlement agreement should specify which parent is going to claim the children as exemptions on future state and federal income tax returns.
Christina: How do we decide which parent should claim the children as tax exemptions?
Ed: Look at how you ran the guideline child support calculation. Which parent was assigned the children as federal exemptions for purposes of your child support calculation? Your settlement agreement should indicate that the exemptions will be allocated in the same way they were allocated for purposes of the child support calculation. If the children were assigned as exemptions to Mom for purposes of the child guideline support calculation, then the settlement agreement should say that Mom is entitled to claim the children as exemptions on her future income tax returns until further order of the court.
Some support calculation software programs, including DissoMaster, will tell you the best way to allocate the children as exemptions in order to minimize the amount of income tax the family unit pays to the government. If you look at our sample DissoMaster child support printout, in the middle column, it provides two different child support amounts. The first set of numbers (i.e., $305 for Child 1 and $558 for Child 2, for a total of $863 in child support, which we have highlighted) assumes that the mother will be claiming both children as federal exemptions. Below those numbers are the “Proposed, tactic 9” numbers. The child support numbers using tactic 9 are $410 for Child 1 and $614 for Child 2, for a total of $1,024 in child support. [The total on the form is actually $1,025 because the computer is rounding up certain calculations.] Why are the tactic 9 child support numbers higher? They are higher because, under tactic 9, the computer program has looked at all the numbers and determined that less income tax will be paid by the family if, instead of Mother claiming both children as exemptions, she gives (“releases”) both exemptions to Father. By moving the exemptions to Father, the family pays $236 less in income tax ($120 less paid by Father and $116 less paid by Mother). Father pays more child support, but the extra support is mostly offset by the tax benefits he will derive by claiming both children as exemptions.
Christina: Don’t the tax laws determine which parent is supposed to claim the children as exemptions?
Ed: The IRS lets you and your spouse allocate the children as exemptions any way you want. You may as well allocate them to pay the least amount of tax and maximize the family’s net income. You can figure the best way to allocate the exemptions by using tactic 9 on the DissoMaster program. If you are using a different support calculation program that does not have something similar to tactic 9, you can move the exemptions around, run multiple support calculations, and then look at both parties’ net spendable income as you move the exemptions. This approach will allow you to figure out how best to allocate the exemptions.
Christina: What if my spouse does not want to pay child support and I don’t want child support, can we just agree that no child support will be paid?
Ed: You can’t waive child support rights. As an adult, you can waive your rights to receive spousal support because those rights belong to you. However, the right to receive child support belongs to the child and can’t be waived by a parent because the court wants to ensure that children are properly supported. Your settlement agreement does not have to include child support at the “guideline” amount. You can agree that child support will be more than the guideline number. You can agree that child support will be less than the guideline number. You can even agree that the child support will be zero, so long as the agreement makes it clear that the court reserves jurisdiction to order the guideline amount of child support at any time in the future.
Christina: In another video, we go over the various Judicial Council forms and the Marital Settlement Agreement template that can be used to set forth your child support agreement.