Legal Case Studies
Child Support Decisions in Shared Custody Agreement – Stan and Madeline
As part of their divorce agreement, Stan and Madeline decided to share physical custody of their children on approximately a fifty-fifty basis. This required that both parents maintain residences in which their two children had their own rooms and clothing. It also meant that during the time the children were with each parent, that parent would be responsible for supplying their food, allowance, social needs, etc. As a result, Stan and Madeline decided to disregard the traditional child support model and agreed that each would total the monies spent on the children and that these monies would be shared equitably. Based on the sharing of the physical custody, Stan and Madeline decided it would be inequitable for them not to share the costs of supporting the children no matter who the children are residing with at any given time.
This is a good example of how changes in the model of custody can effect the way child support is viewed. For Stan and Madeline it was clear: they wanted to share the cost of supporting their children. Both of them were employed and made reasonable salaries and both felt that a sharing of the expenses of the children was fair and equitable. The question, however, of how those expenses should be shared is another matter entirely.
The Big Debt Problem – Sal and Angela
Sal and Angela had resolved all of the issues separating them with the exception of some $25,000 in accumulated debt. They had almost no savings to cover those debts. It had already been decided that Angela would be enjoying exclusive use and occupancy of the couple’s home until their youngest child reached age eighteen or graduated from high school. It had also been decided that Sal’s pension would be divided via a QDRO (Qualified Domestic Relations Order). Sal earned about $60,000 a year and Angela, who had to stay home to take care of the children, earned only $12,000 a year at a part-time job. Both realized that for Angela to stay in the house she would have to use most of her child support, spousal maintenance, and income, and would have little left over for debt reduction. Both also agreed that the debts were marital and that they both had responsibility to pay them. Sal and Angela agreed as follows: An equity loan was taken against the house and a second mortgage created in the amount of $25,000. The $25,000 proceeds of the mortgage were used to pay off the marital debts. It was agreed that this mortgage, which was amortized over fifteen years, would be paid by Sal and, at the time the house was sold, Sal would be reimbursed for what he spent paying the second mortgage. The reimbursement would come directly from the proceeds of the sale of the house before the net equity was split fifty-fifty. In this way, Sal and Angela managed to arrive at an equitable solution.
Pension Decisions – Mary and Bill
Mary and Bill had agreed on everything with regard to their distribution of assets except how to deal with their pensions. Bill was a New York City firefighter and had acquired over the fourteen years of the marriage a substantial pension benefit which was payable when he attained age fifty-five. He is now forty-five. Mary worked for a bank and had acquired approximately $35,000 in assets in a 401K plan. In addition, Mary and Bill each had about $7,000 in IRA plans. Bill’s pension was valued by an actuary who placed its present day value at $85,000. In addition, the actuary projected that at age fifty-five Bill would receive approximately $2,000 a month for the rest of his life from the pension. The couple did not want to disturb any other aspects of their distribution of assets plan. Bill and Mary decided to do the following: Each kept their own IRA plans. They decided to split Mary’s 401K plan by rolling over half of it to an IRA rollover plan in Bob’s name. This is allowed both by the IRS and by her pension plan administrator without any tax penalty. The couple then contacted an attorney would drew up a QDRO directing the administrator of Bill’s pension (a New York City plan) to segregate the contents of the plan in such a way that upon Bill attaining age fifty-five, each would receive checks for one half of the marital share (about one half of the amount that Bill would receive on his own). In doing this, the couple had to select the appropriate pay-out option joint and survivor, and recognized that there would be some reduction in total pension pay-out. This was traded off for the security of knowing that they would each have pension income for the rest of their lives.
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