In every divorce case, there is the possibility that a portion of one spouse’s post-divorce income or efforts will be paid to the other for some period of time to help support the other spouse and the children. (Support also sometimes is paid during a divorce case, and that interim or temporary support may be applied according to the same rules as post-divorce support, but only for as long as the divorce case is pending.)
Broadly speaking, there are two kinds of post-divorce support:
Unlike property division — which allocates between the spouses the marital assets and liabilities that the parties have acquired up to the date of the divorce — child and spousal support allocate earnings and income after the bonds of matrimony have been severed. Each of the broad categories of support has many different subcategories, types, and rules, and some support arrangements can be quite complex in terms of their formulation, structure, duration, amount, and tax consequences. Typically, although not always, spousal support is paid with pre-tax dollars, making it taxable to the recipient and deductible to the payor, while child support is paid with post-tax dollars and is non-taxable to the recipient.
A spouse’s income for support purposes is not the same as a spouse’s taxable income; those may be significantly different, depending on whether a spouse owns a business or rental properties, defers income, or otherwise has deductions that may allow significant cash flow without significant tax liabilities.
Child support is calculated using the Michigan Child Support Formula, which takes into account many factors, such as each parent’s income and financial condition, the number of overnights each parent has with the child, as well as any special needs, health care expenses, or educational expenses of the child. The calculation is formulaic, except in high-income cases, but a trial court may be permitted to deviate from the formula in special circumstances. Child support typically is payable until a children reaches the age of 18 or the child graduates from high school, whichever is later, but not longer than the child reaching the age of 19 1/2 years.
Michigan Child Support Formula Manual specifically recognizes that “[a] parent’s ‘net income’ used to calculate support will not be the same as that person’s take home pay, net taxable income, or similar terms that describe income for other purposes.” §2.01(A). “The objective of determining net income is to establish, as accurately as possible, how much money a parent should have available for support. All relevant aspects of a parent’s financial status are open for consideration when determining support.” §2.01(B). For that reason, while the results of a child support calculation may be determined by the child support formula, the information input into the formula has a huge impact on the result, and for that reason, it is critically important to make certain that the information used in the calculation is accurate and reflective of each spouse’s actual net disposable cash flow.
The Michigan State Disbursement Unit (MiSDU) facilitates child support payments, unless the parties decide to opt out of the statewide system. The system provides an important accounting and enforcement function, and in most cases, it is not a good idea to opt out. The system operates by receiving (or withholding) child support payments from the payer’s paycheck and sending the monthly amounts directly to the MiSDU, which then deposits it into the recipient’s own bank account (or, if desired, a debit card).
If a spouse voluntarily reduces, hides, or eliminates income, a court still may conclude that the spouse has the ability to earn an income and pay child support. A court in those circumstances is permitted to enter a support order based upon that spouse’s unexercised ability to earn an income.
Unlike child support, there are no spousal support guidelines. Many attorneys (and even some judges) have computer formulas designed to create an alimony amount and length of time for alimony to be paid, but those formulas are not the law, and a court is not permitted to use a formula if it is deciding the issue of spousal support. Instead, a court is required to consider the following factors:
1. The past relations and conduct of the parties,
2. The length of the marriage,
3. The abilities of the parties to work,
4. The source and amount of property awarded to the parties,
5. The parties’ ages,
6. The abilities of the parties to pay alimony,
7. The present situation of the parties,
8. The needs of the parties,
9. The parties’ health,
10. The prior standard of living of the parties and whether either is responsible for the support of others, and
11. General principles of equity.
Using these factors, a court is required to balance the incomes and needs of parties in way that would not impoverish either party.
When spousal support is at issue in a divorce case, the divorcing parties may choose to settle their case by deciding:
Although it often is beneficial to both parties if spousal support is deductible to the higher-tax-bracket spouse and taxable to the lower-tax-bracket-spouse (because more support can be paid if the payer gets a bigger tax benefit), not all spousal support is structured that way, and it is critically important to draft any spousal support agreement to comply with IRS rules regarding deductible/taxable support.
Sometimes, alimony claims can be “bought out” using the after-tax present value of the proposed stream of spousal support payments. These buyouts can be very beneficial in helping manage cash flow and eliminating the need to worry about ongoing payments and enforcement.
An existing child support order may be modified whenever there has been a significant change in circumstances, such as one parent having an income increase or decrease. The “minimum threshold for modification” is a change that causes a 10-percent difference in the currently ordered monthly child support payment, or change of at least $50 each month, whichever is greater.
Spousal support modifications are permitted as long as the parties did not waive their right to modifiable spousal support. Spousal support cannot be modified retroactively, but a modification is effective from the date a modification petition is filed, even if that petition is not resolved until much later. Any party moving for modification has the burden of showing sufficiently changed circumstances to warrant modification.
There often are many different possible ways that support can be handled in a divorce or post-judgment proceeding. The terms under which the support is paid often is as important as how much support is paid and for how long, and developing security to ensure that agreed-upon payments actually are made is critically important in most cases.
Developing the most constructive and creative solutions to difficult support problems can help resolve complex situations and ensure stability and security for years to come after the divorce.