Taxing Questions Redux

I want to congratulate the Indiana General Assembly for responding to my earlier post with actual legislation. Alright that’s an overstatement. Technically, I wasn’t consulted. I didn’t appear before a subcommittee or offer research data.  But I’m going to take credit anyway, since I think that’s in the Bloggers Creed somewhere.

The earlier post dealt with the conundrum a court faces when deciding which parent receives a tax benefit for a child.  My answer, in a nutshell was: dealer’s choice (read: judge’s choice). There were some suggestions on handling this situation but no hard-and-fast rules.  But there are now.

On July 1, 2011, H.B. 1427 became law and requires that a judge signing a child support order specify which parent may claim the child as a dependent for purposes of federal or state taxes. Some of the factors that go into the court’s decision include:

•    the value of claiming the child at each parent’s marginal tax rate;
•    each parent’s income;
•    the age of the child and how much longer the child can be claimed;
•    each parent’s costs in child support;
•    any college-level financial aid; and
•    the burden of the property distribution when the parents were divorced (if applicable).

See I.C. 31-14-11-2.5 and I.C. 31-16-6-1.5.

Also, any support-paying parent needs to have paid at least 95% of the support obligation for the tax year in order to be entitled to claim the child. Id.

These factors are essentially the ones that used to be in Guideline 9 of the Indiana Child Support Rules and Guidelines.  In essence the legislature took a cue from the suggestions of the committee that periodically studies the child support rules and made it mandatory for judges to decide the issue.  What was merely a guideline is now a requirement.

So “may” becomes “shall” and depending upon your point of view, that means there is either: (a) one more link in the chains that shackle judicial independence, or (b) one less issue over which divorced or separated parents languish in uncertainty.

I appreciate the need for clarification, but I expect some backlash from this change. It might burden the courts in time and scheduling.  For most litigants, child support is a simple math calculation.  Yes, the parties occasionally disagree about what income to use, but the method of reaching the amount of support paid is not complicated.  But a child support calculation is not (and should not be) dominated by nuance.

Enter H.B. 1427.  Now courts shall dive headfirst into the tax issue every time there is a child support order.  That means a paragraph about claiming the child for tax purposes must appear somewhere above the judge’s signature every time support begins or is modified. Modifications of support are very, very common in Indiana’s family courts today.  This will prompt support-paying parents (mostly fathers) to request the right to claim the children each time the support issue is raised if not satisfied with the current arrangement.  This could greatly expand the amount of time required for each case the judge hears, since the court will have to devote more time to hearing testimony about who-pays-what; who-benefits-by-how-much; and the other issues raised in the new law.

If the legislature really wanted to promote certainty in child support arrangements, then I would suggest a different approach.  Rather than the multi-part balancing test with no leaning toward any particular outcome, simply create a legal presumption in favor of ordering that the parties alternate claiming the child: Dad in even-numbered years and Mom in odd-numbered years.  (For multiple children, allow each to use an equal number of children each year.)  Keep the requirement that support payor being at least 95% current on support to claim any child.  Then allow the court to deviate from this under special circumstances, such as a parent who has no parenting time or relationship with a child.  By doing so, the State makes it easier (and faster and cheaper) for parents and courts to reach a conclusion without forcing the court to apply the test under every circumstance.

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Author: T. Andrew Perkins

I have practiced law in Rochester since 2001. My practice is varied: appellate law; general civil litigation; real estate; family law; and probate and estate planning. I am an active member in the Peru Grace Brethren Church. I have also served on the boards of various community organizations, including: Fulton County Community Foundation, Fulton County Leadership Academy, Fulton County United Way, Rochester Kiwanis Club, Fulton County Council on Aging, and the Fulton County Chamber of Commerce. You can reach my office from the Links page.

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