Litigation

Temporary Unallocated Support May Be Tax Deductible

Temporary unallocated support payments may be tax-deductible on the payor spouse's separate tax return where it can be determined that the payment of the unallocated support would terminate upon the death of the payee spouse. Peterson v. Commissioner of Internal Revenue, No. 12783-02 S, U.S. Tax Court, T.C. Summary Opinion 2003-122, September 2, 2003.

The husband filed an action for a divorce in November 1999. The wife was awarded unallocated temporary support retroactive to December 1999. The parties were also awarded joint custody of their two children. Residential custody of one child was with the wife and of the other child with the husband. The parties' divorce became final in May 2001. When the husband filed his separate taxes for the 2000 taxable year in April 2001, he deducted the sum of $24,424 as alimony paid under the temporary support order. Thereafter, in May 2001, the Commissioner of Internal Revenue determined a deficiency in the husband's federal income tax of $ 6373.56 for the 2000 taxable year. The Commissioner argued that the unallocated support payments did not constitute 'alimony or separate maintenance payments' that the husband would be permitted to deduct under Internal Revenue Code (IRC) Section 215. The husband argued that the unallocated support payments were 'alimony or separate maintenance payments' because under New Jersey law and section 215, the death of the wife would release the husband from his obligation to make the unallocated support payment. His argument was supported by the fact that he and the wife were awarded joint custody of the two children of the parties, each having residential custody of one child. The tax court concluded that the husband did not have an obligation to continue to make the unallocated payments upon the death of the wife. Although the temporary support order issued by the New Jersey court was silent regarding whether the unallocated support payments would cease upon the wife's death, New Jersey law indicated that because the parties had been awarded joint custody of the two children, and each party was awarded residential custody of one child, it was reasonable to conclude that the payments to the wife constituted support for the wife (and not the children) because custody (and therefore support) of the minor children would revert to the husband upon the wife's death.

Future Child Support: Subject to UFTA?

Although the transfer of assets under a matrimonial settlement agreement is subject to scrutiny by creditors under the Uniform Fraudulent Transfer Act (UFTA), future child support payments fall outside the scope of the UFTA. Mejia v. Reed, S106586, Cal.Sup. Ct., August 14, 2003.

Danilo Reed had an extramarital relationship with the plaintiff, Rhina Mejia, which resulted in the birth of a child. Subsequently, Reed's wife filed an action for divorce. The Reeds entered into a matrimonial settlement agreement wherein the husband transferred all of his interest in their joint real estate to the wife. The wife conveyed all of her interest in the husband's medical practice to him. The matrimonial settlement agreement provided that only the husband would be responsible for the support of the child born from the extramarital relationship with Mejia. A final judgment of divorce was entered.

Within 2 years, Reed had ceased his practice of medicine and resided with his mother. He had no assets and little income. Mejia filed an action against him, claiming that the settlement agreement between Reed and his ex-wife was a fraudulent transfer under the Uniform Fraudulent Transfer Act (UFTA). She claimed that Reed made transfers to his wife in order to avoid making child support payments. She argued that the transfers were fraudulent because at the time the Reeds entered into the matrimonial settlement agreement, the discounted present value of the husband's future child support payments was greater than the value of assets distributed to him. Reed moved for summary judgment, arguing that Mejia presented no evidence of his intent to defraud. The trial court granted his motion, holding that the transfer of assets under the matrimonial settlement agreement did not make him insolvent as to his child support obligations. The California Court of Appeals reversed the trial court, finding that issues of fact regarding actual and constructive fraud precluded summary judgment. The husband appealed to the Supreme Court of California, challenging the court of appeals decision only with regard to constructive fraud.

The state Supreme Court reversed the court of appeals and remanded the matter. It first noted that the UFTA applies to transfers under matrimonial settlement agreements and that creditors are permitted to challenge transfers under a marital settlement agreement. However, the court held that there were no triable issues regarding constructive fraud in this particular case. It considered that although the UFTA includes unmatured contingent claims as debts, child support payments are a unique matter because support payments are usually paid out of the payor's present income, rather than from liquidation of assets. Therefore, it concluded that future child support payments are not to be considered debts under the UFTA. It reasoned that most individuals do not have sufficient assets at the time they are charged with child support payments to pay out the present value of the total amount of payments due. In this case, because the husband was not rendered insolvent by the transfers under the matrimonial agreement, there was no triable issue of constructive fraud. The court noted that triable issues of fact existed as to actual fraud and remanded that matter to the trial court.

Order Compelling Mediation Appropriate, Says Court

An order compelling mediation is appropriate where the parties' settlement agreement provides that the parties agree to attend mediation if they cannot agree where the parties' child shall attend high school. Edwards v. Poulmentis, Index No. 6649/02, 2002-07537, N.Y. App. Div., 2d Dept., August 26, 2003.

The parties entered into a matrimonial settlement agreement and were divorced by judgment. The agreement was incorporated but not merged into the judgment of divorce. The agreement provided that the parties' children would attend Mercy High School unless the parties mutually agreed on another parochial, private or public school. The agreement also provided that if the parties could not mutually agree on the school, they would attend mediation regarding the dispute. In 2002, one of the parties' children indicated that she wished to attend Mattituck High School (a public school) instead of Mercy. The wife supported the child's desire, but the husband argued that the child was required to attend Mercy. The wife moved for specific performance of the mediation provision and moved for an order to compel the husband to attend mediation. The husband cross-moved to dismiss and the trial court held that the agreement was clear and unambiguous: the children of the parties were required to attend Mercy. The wife appealed and the appellate court held that the settlement agreement did not require that the children of the parties attend Mercy, only that the parties anticipated that the children would attend Mercy unless the parties agreed on another high school. The agreement further stated that if the parties could not agree, they would attend mediation on the matter. The appellate court held that the wife was entitled to an order compelling the husband to attend mediation.

Are a Cop's Payroll Records Exempted from Statutory Discovery?

In marital dissolution proceedings, a peace officer's payroll records are excepted from the statutory discovery requirements of confidential 'personnel records.' City of Los Angeles v. Superior Court of Orange County; Valerie Williamson, Real Party In Interest, G031269, Cal. Ct. App. , 4th App. Dist., Div. 3, August 27, 2003.

The husband was employed as a peace officer with the Los Angeles Police Department (LAPD). The wife filed a petition for dissolution of marriage. During discovery, the wife served a subpoena duces tecum on the LAPD, demanding the release of the husband's payroll records from July 1, 2001 to the present. The LAPD could not release the records because the husband's payroll records were statutorily considered confidential 'personnel records.' Instead, it followed its usual procedure of forwarding a routine waiver to the husband for him to sign so that the records could be released. The husband refused to sign the waiver. After a series of telephone conversations and letters between the attorneys of the parties, the LAPD filed a petition with the trial court for, inter alia, an order quashing the wife's subpoena. The trial court denied the petition and the LAPD appealed. The appellate court also denied the LAPD's petition. It held that, although the husband's payroll records are included under the category of confidential 'personnel records,' the intent of the legislature was to provide for full financial disclosure in matrimonial dissolution actions. Therefore, the release of payroll records in matrimonial dissolution actions requires the creation of an exception to the general rule of confidentiality.

The court noted that the usual procedure in general civil litigation to obtain a peace officer's personnel records is called a 'Pitchess' procedure. However, the court held that in family law matters, there should be an exception to the Pitchess procedure because of the nature of the matrimonial matter. A spouse in a matrimonial or other family law matter is entitled to disclosure of the other spouse's financial records. To require a full Pitchess procedure would be a wasted and costly effort that goes against the need for cooperative discovery in matrimonial matters. The appellate court did not award costs or order sanctions against either the LAPD or the wife (the two parties to the appeal). It noted, however, that had the husband signed the waiver that peace officer spouses involved in matrimonial actions usually sign, the costs and efforts of the matter before the court could have been avoided. It noted it would leave an assessment of costs, sanctions and attorneys fees to the discretion of the trial court in the matrimonial action.

Temporary Unallocated Support May Be Tax Deductible

Temporary unallocated support payments may be tax-deductible on the payor spouse's separate tax return where it can be determined that the payment of the unallocated support would terminate upon the death of the payee spouse. Peterson v. Commissioner of Internal Revenue, No. 12783-02 S, U.S. Tax Court, T.C. Summary Opinion 2003-122, September 2, 2003.

The husband filed an action for a divorce in November 1999. The wife was awarded unallocated temporary support retroactive to December 1999. The parties were also awarded joint custody of their two children. Residential custody of one child was with the wife and of the other child with the husband. The parties' divorce became final in May 2001. When the husband filed his separate taxes for the 2000 taxable year in April 2001, he deducted the sum of $24,424 as alimony paid under the temporary support order. Thereafter, in May 2001, the Commissioner of Internal Revenue determined a deficiency in the husband's federal income tax of $ 6373.56 for the 2000 taxable year. The Commissioner argued that the unallocated support payments did not constitute 'alimony or separate maintenance payments' that the husband would be permitted to deduct under Internal Revenue Code (IRC) Section 215. The husband argued that the unallocated support payments were 'alimony or separate maintenance payments' because under New Jersey law and section 215, the death of the wife would release the husband from his obligation to make the unallocated support payment. His argument was supported by the fact that he and the wife were awarded joint custody of the two children of the parties, each having residential custody of one child. The tax court concluded that the husband did not have an obligation to continue to make the unallocated payments upon the death of the wife. Although the temporary support order issued by the New Jersey court was silent regarding whether the unallocated support payments would cease upon the wife's death, New Jersey law indicated that because the parties had been awarded joint custody of the two children, and each party was awarded residential custody of one child, it was reasonable to conclude that the payments to the wife constituted support for the wife (and not the children) because custody (and therefore support) of the minor children would revert to the husband upon the wife's death.

Future Child Support: Subject to UFTA?

Although the transfer of assets under a matrimonial settlement agreement is subject to scrutiny by creditors under the Uniform Fraudulent Transfer Act (UFTA), future child support payments fall outside the scope of the UFTA. Mejia v. Reed, S106586, Cal.Sup. Ct., August 14, 2003.

Danilo Reed had an extramarital relationship with the plaintiff, Rhina Mejia, which resulted in the birth of a child. Subsequently, Reed's wife filed an action for divorce. The Reeds entered into a matrimonial settlement agreement wherein the husband transferred all of his interest in their joint real estate to the wife. The wife conveyed all of her interest in the husband's medical practice to him. The matrimonial settlement agreement provided that only the husband would be responsible for the support of the child born from the extramarital relationship with Mejia. A final judgment of divorce was entered.

Within 2 years, Reed had ceased his practice of medicine and resided with his mother. He had no assets and little income. Mejia filed an action against him, claiming that the settlement agreement between Reed and his ex-wife was a fraudulent transfer under the Uniform Fraudulent Transfer Act (UFTA). She claimed that Reed made transfers to his wife in order to avoid making child support payments. She argued that the transfers were fraudulent because at the time the Reeds entered into the matrimonial settlement agreement, the discounted present value of the husband's future child support payments was greater than the value of assets distributed to him. Reed moved for summary judgment, arguing that Mejia presented no evidence of his intent to defraud. The trial court granted his motion, holding that the transfer of assets under the matrimonial settlement agreement did not make him insolvent as to his child support obligations. The California Court of Appeals reversed the trial court, finding that issues of fact regarding actual and constructive fraud precluded summary judgment. The husband appealed to the Supreme Court of California, challenging the court of appeals decision only with regard to constructive fraud.

The state Supreme Court reversed the court of appeals and remanded the matter. It first noted that the UFTA applies to transfers under matrimonial settlement agreements and that creditors are permitted to challenge transfers under a marital settlement agreement. However, the court held that there were no triable issues regarding constructive fraud in this particular case. It considered that although the UFTA includes unmatured contingent claims as debts, child support payments are a unique matter because support payments are usually paid out of the payor's present income, rather than from liquidation of assets. Therefore, it concluded that future child support payments are not to be considered debts under the UFTA. It reasoned that most individuals do not have sufficient assets at the time they are charged with child support payments to pay out the present value of the total amount of payments due. In this case, because the husband was not rendered insolvent by the transfers under the matrimonial agreement, there was no triable issue of constructive fraud. The court noted that triable issues of fact existed as to actual fraud and remanded that matter to the trial court.

Order Compelling Mediation Appropriate, Says Court

An order compelling mediation is appropriate where the parties' settlement agreement provides that the parties agree to attend mediation if they cannot agree where the parties' child shall attend high school. Edwards v. Poulmentis, Index No. 6649/02, 2002-07537, N.Y. App. Div., 2d Dept., August 26, 2003.

The parties entered into a matrimonial settlement agreement and were divorced by judgment. The agreement was incorporated but not merged into the judgment of divorce. The agreement provided that the parties' children would attend Mercy High School unless the parties mutually agreed on another parochial, private or public school. The agreement also provided that if the parties could not mutually agree on the school, they would attend mediation regarding the dispute. In 2002, one of the parties' children indicated that she wished to attend Mattituck High School (a public school) instead of Mercy. The wife supported the child's desire, but the husband argued that the child was required to attend Mercy. The wife moved for specific performance of the mediation provision and moved for an order to compel the husband to attend mediation. The husband cross-moved to dismiss and the trial court held that the agreement was clear and unambiguous: the children of the parties were required to attend Mercy. The wife appealed and the appellate court held that the settlement agreement did not require that the children of the parties attend Mercy, only that the parties anticipated that the children would attend Mercy unless the parties agreed on another high school. The agreement further stated that if the parties could not agree, they would attend mediation on the matter. The appellate court held that the wife was entitled to an order compelling the husband to attend mediation.

Are a Cop's Payroll Records Exempted from Statutory Discovery?

In marital dissolution proceedings, a peace officer's payroll records are excepted from the statutory discovery requirements of confidential 'personnel records.' City of Los Angeles v. Superior Court of Orange County; Valerie Williamson, Real Party In Interest, G031269, Cal. Ct. App. , 4th App. Dist., Div. 3, August 27, 2003.

The husband was employed as a peace officer with the Los Angeles Police Department (LAPD). The wife filed a petition for dissolution of marriage. During discovery, the wife served a subpoena duces tecum on the LAPD, demanding the release of the husband's payroll records from July 1, 2001 to the present. The LAPD could not release the records because the husband's payroll records were statutorily considered confidential 'personnel records.' Instead, it followed its usual procedure of forwarding a routine waiver to the husband for him to sign so that the records could be released. The husband refused to sign the waiver. After a series of telephone conversations and letters between the attorneys of the parties, the LAPD filed a petition with the trial court for, inter alia, an order quashing the wife's subpoena. The trial court denied the petition and the LAPD appealed. The appellate court also denied the LAPD's petition. It held that, although the husband's payroll records are included under the category of confidential 'personnel records,' the intent of the legislature was to provide for full financial disclosure in matrimonial dissolution actions. Therefore, the release of payroll records in matrimonial dissolution actions requires the creation of an exception to the general rule of confidentiality.

The court noted that the usual procedure in general civil litigation to obtain a peace officer's personnel records is called a 'Pitchess' procedure. However, the court held that in family law matters, there should be an exception to the Pitchess procedure because of the nature of the matrimonial matter. A spouse in a matrimonial or other family law matter is entitled to disclosure of the other spouse's financial records. To require a full Pitchess procedure would be a wasted and costly effort that goes against the need for cooperative discovery in matrimonial matters. The appellate court did not award costs or order sanctions against either the LAPD or the wife (the two parties to the appeal). It noted, however, that had the husband signed the waiver that peace officer spouses involved in matrimonial actions usually sign, the costs and efforts of the matter before the court could have been avoided. It noted it would leave an assessment of costs, sanctions and attorneys fees to the discretion of the trial court in the matrimonial action.