Tag Archives: maintenance/alimony

How to Attack a Colorado Prenup

Previously we went over the general requirements for a prenuptial agreement in Colorado. There are some important changes to Colorado law on prenups coming next week, but we’ll first discuss the ways a prenup agreement may be invalidated. These concepts apply to both prenups and agreements made after people are married.

Change in Circumstances

Although nearly impossible, a spouse seeking to attack the validity of a Colorado prenup may successfully argue that a change in circumstances justifies a court finding that the state’s interest in the welfare of a divorced spouse outweighs the freedom to contract. A court may consider factors such as (a) whether there are children, (b) the length of the marriage and (c) if there was a detrimental reliance on the marriage. But a person considering a Colorado prenup should never assume that a change of circumstances will allow them to wiggle out of an otherwise valid agreement.

Violation of Public Policy

Similar to a change of circumstances, there are several topics where the sanctity of contract will be overridden by Colorado public policy. For example, a provision on child support or religious training for children will be invalidated by a Colorado court. Moreover, agreements where a party waives spousal maintenance or attorneys’ fees may be unenforceable if it would be “unconscionable” under Newman v. Newman and In re Marriage of Ikeler, respectively. Whether a provision is unconscionable is determined at the time of the Colorado divorce.

Fraud, Duress or Undue Influence

A contract must be agreed to voluntarily. The same principle applies to a Colorado prenup. If a person is forced into signing a prenup, it will be unenforceable. Factors such as the time between the execution of the prenup and the wedding, or whether Colorado lawyers are involved will be relevant. But the threat of calling off the wedding is not enough for duress or to invalidate a prenup.

Lack of Disclosure and Independent Counsel

Parties to a Colorado prenup need to disclose their financial circumstances. However, there isn’t a bright-line rule on what is sufficient disclosure for a binding prenup. And as referenced above, lack of independent counsel may be considered when a court evaluates whether parties voluntarily and knowingly entered into the agreement. The best practice is for a party negotiating a prenup to (a) hire a Colorado lawyer, and (b) produce as much detail about their finances as possible. Those details should include bank, mortgage and investment statements,  copies of pay stubs, appraisals for businesses or real estate and information about any contingent or prospective assets such as trusts or inheritances.

Coming soon is a post about the new changes to the Premarital and Marital Agreement Act in Colorado.

Child Support and Taxes

Tax season is upon us and I’ve been getting a lot of questions about child support and taxes. First, Colorado child support is generally not taxable. Unlike maintenance/alimony, the payor of child support cannot deduct paid child support from their taxable income. Similarly, a parent receiving child support need not report that money on their tax return.

Second, a minor child can be claimed as a dependent on a parent’s tax return. Who gets the dependency exemption? Pursuant to C.R.S. 14-10-115(12), the Colorado court is required to allocate the right to claim a child as a dependent in proportion to the parents’ contributions to the costs of raising the child. If a mother has more parenting time than the father and she pays for the child’s sports, tutoring, health insurance, daycare, etc., the court will likely give her the right to claim the child as a dependent.

Nevertheless, the parties can always voluntarily agree on which parent gets to claim a child in a particular year. Although Colorado has done away with the term “custody” in favor of “parenting time,” the IRS predictably is behind the times. The “custodial parent” matters for IRS purposes and is defined as the parent with the most overnights. Because there are an odd number (365) of days in a year, one parent will almost always have more than the other even when they are “50/50 parents” or have “equal time.” That parent is then the “custodial parent” under the current IRS regs and the one eligible to claim the child as a dependent. There are times when the IRS regs conflict with the Colorado law on who gets to claim the child as a dependent. As a result, it is usually a good idea for parents to sign IRS Form 8332 along with their divorce or allocation of parenting rights agreements to ameliorate any issues down the road if the parties agree to split the right to claim a child on future tax returns.

In addition to the dependency deduction, the current tax code allows for a separate deduction for work-related day care and a credit (different from a deduction) for each child. The rules on those deductions and credit are complex because they hinge on the taxpayer’s income and other factors. Tax laws change all the time and my advice is always for a client to consult with a CPA or tax attorney before signing a deal.

Although parties going through a Colorado divorce or dispute over parenting rights often times will disagree about the color of the sky on particular day, there are times when it makes sense for them to strategically work together on taxes. For example, if one parent cannot benefit from the tax credit because they make too much money, they can offer to give the other parent the right to claim that child and split the amount of the credit. It results in a “win-win” for both parents. It is rare to characterize anything as a “win-win” in a Colorado divorce or when discussing anything related to taxes, but it is possible if the parties have thoughtful divorce lawyers and CPAs.

DUI, Divorce and Marijuana Laws in 2014

Welcome to 2014. New laws are now in effect for Aspen DUIs and Vail DUIs, especially how those cases are handled with the Colorado DMV. Read more here.

In addition, those filing for divorce must aware that Colorado now has a significantly different law on how maintenance/alimony is analyzed in 2014 and beyond. Make sure your Aspen divorce lawyer knows about the change. To see more about the amendments, click here.

Finally, as has been widely reported in the news, recreational marijuana is now perfectly legal in Colorado. By all accounts, the transition went smoothly. There are no retail marijuana stores currently open in Garfield County or Aspen. They are coming, though.  Contrary to other mountain communities, both Vail and Eagle County are holding off on allowing recreational marijuana for now.

We are in the midst of Aspen’s prime tourism season. It will be interesting to see the effect of “marijuana tourism” in Aspen next year.

Voluntary Unemployment for Colorado Family Law

Voluntary unemployment is when an award of spousal maintenance or child support is based on imputed income that is not actually being earned by a parent or former spouse. The same concept applies whether the person is completely unemployed or working below their true earning capacity, i.e. “underemployed.” Voluntary unemployment frequently comes up in Colorado divorces where maintenance is at issue or any case involving child support.

Both parents are obligated to support their children. If one parent isn’t earning as much as they could, the child suffers. A party may lack the initiative to find or keep work. They may be purposefully turning down work to spite the other party. Whatever the reason, they are shirking their obligation to support the child. The policy of spousal support vis-a-vis maintenance (alimony) is no different.

The dispute comes down to (a) whether a parent is making less than what they should be, and (b) what is the potential income for the parent. A few examples may help.

  • In re Marriage of Bregar – court imputed income to former lawyer who had started a cattle ranch.
  • In re Marriage of Yates – imputed income based on former pay rate when father was involuntarily terminated from job, but turned down jobs that required travel.
  • In re Marriage of Elmer – licensed attorney imputed income because he decided to pick apples at $10/hour.
  • In re Marriage of Zisch – mother with teaching certificate was imputed income even though she testified that she was actively looking for a full-time teaching position.

Exceptions

Under Colorado law, there are a few notable situations where a court cannot impute income based on a parent or former spouse being unemployed. These exceptions are listed below:

  1. A party is physically or mentally incapacitated.
  2. A parent is caring for a child under the age of 30 months.
  3. A parent that is in prison for 1+ years.

Similarly, a party will not be underemployed if:

  1. They’re working in a position that is temporary and reasonably intended to result in higher income in the foreseeable future; or
  2. They’re job is a good faith career move that isn’t intended to deprive the other party of child support. The lower position cannot unreasonably reduce the support available to a child; or
  3. They’re in an education program that will likely result in higher income within a reasonable period of time.

Calculating Imputed Income

As previously discussed, Colorado law is fairly specific in determining a party’s income. How should a court calculate income when a party is unemployed or underemployed? Case law suggests that a court can use past earnings, education level, or wages of an average person with similar qualifications in finding the appropriate amount of income for calculating child support or maintenance.

Colorado divorce attorneys have multiple arrows in their quiver when handling a case involving allegations of underemployment or unemployment. Using employment statistics from the department of labor or formal discovery requests can break a case. Familiarity with the judge presiding over the case will drive the strategy behind the presentation of evidence and line of argument.

What is “Income” for Child Support and Maintenance in a Colorado divorce?

To kick off our multi-part series on Colorado’s new law on spousal maintenance (alimony), we first started with a general overview of the guideline formulas in C.R.S. 14-10-114. Next, we considered when a spouse going through a divorce is eligible for maintenance under the “threshold test.” Now we turn to “income,” a benign term that on its face appears to be relatively simple. As detailed below, determining income for a party in a Colorado divorce can be complicated.

Before the recent amendments to Colorado’s law on maintenance, C.R.S. 14-10-114, it was unclear how a court should determine income for cases where long-term, i.e. permanent, maintenance was requested or the parties annually made $75,000 in total. Colorado divorce attorneys relied on inferences in the maintenance statute to the more specific definition of income for child support and cases such as In re Marriage of Swing. And even relying on the definition of income for child support proved to be problematic when a party was self-employed or was part of a partnership or close-held corporation.

Fortunately, however, the General Assembly clarified what exactly is “income” in determining both maintenance and child support in Colorado. Starting on January 1, 2014, the amount of income that is used in the Child Support Worksheet or Maintenance Guidelines is the same.

The first concept that must be understood is the difference between gross and net income. Gross income is before taxes and deductions like health insurance or 401(k) contributions are taken out. Net income is the money left after taxes and deductions; the amount a salaried employee gets if they do direct deposit. In Colorado, gross income is what matters for maintenance and child support.

“Gross income” includes the following:

  • Income from salaries
  • Wages
  • Tips declared to the IRS or imputed by the court
  • Commissions
  • Payments received as an independent contractor
  • Bonuses
  • Dividends, capital gains, trust distributions, annuity payments and interest
  • Rents
  • Social security, workers comp, and disability benefits
  • Gifts, including from family members
  • Expense reimbursements or in-kind benefits such as free housing, food, transportation, etc.
  • Moneys drawn by a self-employed individual for personal use that are deducted as a business expense

The above is not an exhaustive list. And income does not include child support payments received, or money received from additional jobs or work beyond 40 hours per week.

Things get tricky when a party is self-employed or involved in a partnership or closely-held business. Generally, income for someone self-employed or an owner of a small business is calculated by taking the gross receipts/revenue and subtracting “ordinary and necessary expenses.” That last term is where parties frequently disagree on whether an expense is a legitimate business deduction. The debate doesn’t end with a cursory review of a tax return.

People frequently run much of their personal expenses through their business because the risk of an audit by the IRS is somewhere in the neighborhood of 1%. For example, a self-employed project manager may deduct his entire monthly cell phone bill or gas expenses even though he undoubtedly uses his cell phone for personal use, or drives up to Aspen on a weekend to ski. He may not get caught by the IRS, but a competent Colorado divorce lawyer will successfully argue that his income is higher for analyzing maintenance and child support.

Finally, the amendments to Colorado law clarify how income is determined for a “silent partner” or someone that owns part of a business, but isn’t a manager. In that scenario, income for maintenance and child-support purposes may be limited to actual cash distributions. That income may be lower than merely taking the gross revenue of the company and reducing by ordinary business expenses.

We’ll continue our discussion on Colorado maintenance (alimony) and child support by examining voluntary unemployment or underemployment.

Colorado Maintenance (Alimony) Threshold Test

Before a court even gets into the new Colorado spousal maintenance (alimony) guidelines previously discussed, a threshold test is applied. There are two prongs of the “threshold test” under C.R.S. 14-10-114.

Sufficient Property

First, the court must find that a spouse lacks sufficient property to provide for his or her reasonable needs. This means that a court must divide property in the divorce before turning to the issue of maintenance. If a spouse is awarded an income-producing asset, such as a rental property, they are less likely to need maintenance/alimony from the other party. However, a spouse is not required to sell or consume property awarded to them before being entitled to maintenance.

What does “reasonable needs” mean? It depends on the particular circumstances of each case – an inherently squishy and debatable concept. The standard of living established during the marriage is a relevant factor. A marriage where frequent travel and fine-dining were enjoyed is different than a spartan one. The reasonable needs will be based on the present circumstances at the time of the hearing rather than the past or future conditions.

Spousal maintenance is to provide the means to obtain food, clothing, habitation and other necessities. Colorado courts have taken a fairly expansive view of “reasonable needs,” and stated that it does not mean the minimum requirements to sustain life. Nevertheless, a court is not required to ensure spouses have an equal lifestyle forever.

The totality of the parties’ financial circumstances will also be considered. If a spouse is the beneficiary of a trust, that may be considered even though the trust is not “property” under Colorado law. The reasoning behind this rule is easy to understand – a party doesn’t need maintenance/alimony if they’ll be perfectly fine on their own.

Appropriate Employment

If property awarded to a spouse is insufficient to provide for their reasonable needs, the court will move on to the second part of the threshold test: employment. A person won’t need maintenance/alimony if he or she can support themselves on their own. Again, each case is different.

The court will determine what is “appropriate employment” for a spouse requesting an award of maintenance. The expectations and intentions established during the marriage will be considered along with the age, education, work history, health and of the requesting spouse. A court will also take into account if a person is voluntarily underemployed or completely unemployed. A famous Colorado divorce case (In re the Marriage of Elmer) involved an attorney that voluntarily quit practicing law and decided to pick apples at $10/hour. The court imputed income to that party based on his higher earning capacity.

The above is a brief summary concerning Colorado’s “threshold test” for awarding maintenance/alimony in a divorce. There are a number of other factors that a court will consider in a Colorado divorce where a party is requesting spousal maintenance. Those factors will be discussed in upcoming posts.