Minneapolis Divorce Attorney & Lawyer : Minnesota Family Law Firm : Brown Law Offices : St. Paul, Twin Cities MN

More and more Minnesota counties are providing divorce litigants with an opportunity to resolve their financial issues through a process known as "Financial Early Neutral Evaluation." Settlement success rates in the FENE model are astonishing - as high as 75% in some jurisdictions.

An FENE involves a half-day session (or two, or three, or four) with a court-appointed neutral. This neutral typically is an experienced family law attorney, or a CPA familiar with the financial issues involved in a divorce. The parties, and their lawyers, sit down with the evaluator very early in the case - in an effort to catch people before they become too embroiled in conflict, or stuck in their position.

The process begins with the exchange of information, to ensure that there has been a full and fair disclosure of all income, assets and liabilities. A balance sheet is often created, which defines the universe of assets and debts, attributes value, provides a basis for the value, carves out any non-marital claims, and then allocates the relevant item to one of the parties. Once all allocated assets and debts are added up for each litigant, the cumulative value for each should be equal. This is typically the least controversial portion of the FENE, but can take some time.

The more controversial portion of the FENE involves the issue of spousal maintenance. With the assistance of the evaluator, the income and budgets of the parties will be scrutinized. A range of possible outcomes may be discussed, and recommendations may be made by the evaluator concerning the amount, and duration, of alimony in the event that the judge is left to decide the issue. Settlement discussions begin with that opinion as a backdrop.

Why does FENE work so often? A few points:

• The parties have direct conversation with one another, and the evaluator, in a natural way. A far cry from the robotic "question and answer" method of introducing evidence during a trial.
• The rules of evidence go out the window at an FENE. Any issue is up for discussion, empowering participants to voice their real-life concerns.
• Emotions may be taken into account at an FENE. Issues concerning "fairness" and "hurt" may be addressed as part of the process. Frankly, the law of "no-fault divorce" precludes alot of this in the courtroom.
• The process can be therapeutic. People feel like they can speak their mind, and they are listened to. Sometimes all a party needs is to be heard by someone. 
• Spouses have to look each in the eye as they discuss the issues. Very different from sitting 25 feet apart in the courtroom, facing front.
• There is a real sense that the parties can "get it done" during the process. Litigants believe that closure has real value, and may be worth a compromise.
• The process is a respectful one. Most evaluators know how to keep tempers from flaring.
• The evaluators, not the lawyers, control the agenda. Both parties feel they are on a level playing field. 
• Opinions matter. Litigants afford substantial weight to the perspective of the evaluators. They know the evaluator has no stake in the outcome, and the experience to back up their opinions.
• The neutrals are forced to "show their work." What I mean is that the parties are literally walked through each of the elements of the case, together, and hear the same thing at the same time. They see how the opinions of the evaluator are created right before their eyes, giving them more credibility.
• The surroundings are comfortable. There are no robes, no gavels, no court reporters, and no security. Just people sitting around a table, with their favorite beverage, talking.

As time goes on, I suspect the FENE process will gain statewide acceptance. Most of the counties in the Twin Cities metro area have adopted such a program. Why wouldn't they? With a 3/4 reduction in divorce litigation, everybody wins....except those lawyers whose practice model is based on "dog fight" mentality. But, who's feeling sorry for them anyway?

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The lawyers with Thyden, Gross & Callahan, LLP, authors of the Maryland Divorce Legal Crier, recently published an article entitled "Putting the Fault Back into No-Fault Divorce." They point out that despite the fact that several states on the east coast have moved (like Minnesota in the 1970's) to "no-fault" divorce, fault still creeps into the mix.

The same is true in Minnesota. While easy to simply utter "we're a no-fault state," we're not entirely no-fault. Here's a compare/contrast between they Thyden summary and Minnesota law:

Property:

East Coast. In determining how marital property is to be equitably distributed, each jurisdiction has another list of factors the court must consider.  In Maryland, there is a catch all provision that includes any other factors that the court considers appropriate.  In Virginia, one factor is circumstances contributing to the dissolution of marriage.  In DC, it is circumstances contributing to the estrangement.

Minnesota: We see fault creep into asset and liability allocations through the dissipation of assets, concealing of assets, or "sin spending." If a party dissipates assets (sells while divorce is imminent) the non-selling spouse will likely receive their share of that asset, on the balance sheet, as part of the ultimate distribution. If a spouse conceals assets, the court may ultimately award the concealed asset, in full, to the innocent spouse. And, if one party gambles away marital assets, or incurs substantial debt in relation to alcohol abuse, cheating or gambling, the court may allocate the financial consequences of "faulty" behavior to the "sinning" spouse. 

Custody: 

East Coast. Marital misconduct does not necessarily make you a bad parent.  The test is best interest of the children.  But the parties think it is important that the judge know what a scoundrel the other parent is, especially if the other parent is slinging mud, too.

Minnesota. Minnesota's "best interest standard" takes into account behavior that impedes a spouse's ability to adequately parent a child. For example, if alcoholism led to a breakdown in the marital relationship, no impact on spousal maintenance. Custody? The court is absolutely interested in hearing about it...and how the alcohol abuse has affected the children. The same is true with domestic abuse, adultery or late night partying.

Alimony:

East Coast: In each jurisdiction, the law provides a list of factors the court must consider in determining alimony. In Maryland and DC, one of the factors is circumstances surrounding the estrangement of the parties. In Virginia, adultery can prevent a spouse from receiving alimony unless the court finds that would create a manifest injustice.

Minnesota: A list of factors for the court to consider, but the circumstances surrounding the estrangement of the parties is not one of the them. Nor is the question of adultery. Many of our clients are shocked ("outraged" is a more accurate description) to learn that their spouse's cheating has no bearing on an award of spousal maintenance. Might a newly-elected conservative legislature in Minnesota be open to changing the statute? Wouldn't surprise me.

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The Family Law Show returns with an overview of spousal maintenance (alimony) awards under Minnesota law.

Alimony is an emotionally-charged issue, with significant financial implications for both parties. The spouse asked to pay rarely wants to, while the spouse asking for support usually needs it. What is the Court going to do?

Topics discussed in this podcast include the role fault plays in an alimony award, the factors the court will examine in determining how much alimony is appropriate, the factors the court will examine in determining how long alimony should be paid, and the tax implications of spousal maintenance payments.

Run Time: 13:18

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Many divorces involve alimony, child support and the division of assets - all of which involve taxation issues. Litigants tend to overlook the impact that these provisions will have on their taxes. As lawyers, however, we consistently take the tax consequences into account in determining what is fair and equitable under the circumstances.

Alimony payments are considered income for the person to whom the payments are made, and are deductible to the person who's making the payments. If the parties are in different tax brackets, the government may wind up subsidizing part of the alimony payment.

In contrast to alimony, child support payments are not considered as income to the person receiving the payments, nor are payments deductible to the person making the payment. As a result, child support payments do not have any tax consequences at all. Important, however, if alimony is also an issue, to run the child support numbers and compare available cash - as opposed to gross income - in determining need versus ability to pay.

The sale of the marital homestead does not typically involve a taxable event. Capital gains up to $500,000 from the sale of the homestead will be not subject to taxation, if you have lived there for two of the last five years.

If you choose to transfer title to the residence, allowing your spouse to retain the equity, no taxable event occurs. Many clients will opt to use the home equity as an offset against alimony payments, avoiding tax issues altogether.  

However, if you want to adjust the property division in a way that allows both partners to retain equal equity in assets, there may be sizable tax consequence to consider. For example, if one spouse retains the marital homestead and offers the other a retirement account in exchange for his/her share of equity in the house, the resulting settlement may not be fair to the one who takes the retirement account. That's because if this spouse wants to access his retirement account funds, they cannot do so without incurring a tax liability. As a result, when you factor in the tax liability, the person who received the retirement account could actually end up with a lower settlement.

Simply put, a dollar of equity in a home is worth a dollar on the street. A dollar in a 401(k) plan is worth, perhaps, 70 cents on the street. For that reason, we always consider the net value of a particular asset in creating an equal property settlement.

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Once an award of spousal maintenance (alimony) is ordered by the court, it may be modified if certain criteria are met. In order to modify and award of alimony, the party seeking modification obtains a court date and serves and files motion papers. Keep in mind that the modification, if granted, is usually only retroactive to the date that the motion papers are served on the other side. For that reason, it is important to obtain legal assistance at the earliest possible time, rather than allowing arrears to build up, if you are unable to afford the maintenance obligation as ordered.

Any of the following provide a basis for the judge to modify an existing alimony order:

• Substantially increased or decreased earnings of either party;
• Substantially increased or decreased needs of either party;
• Receipt of public assistance benefits;
• Change in cost of living, as measured by the federal government; and
• Significant medical expenses incurred on behalf of a child that are not otherwise addressed in the judgment and decree.

Additional factors for consideration include the initial standards the court addresses in awarding spousal maintenance:

• Financial need of each party relative to their income;
• The ability of one party to pay the other spousal support;
• The length of marriage;
• The mental and physical health of the parties;
• The role each party played during the marriage, in terms of working or raising children;
• Financial assets available to each party to supplement their income;
• The educational background of each party; and
• The age of each party.

While the issues involved in modifying spousal maintenance are usually addressed in motion papers alone (such as affidavits and exhibits), some judges will order an evidentiary hearing (trial) to determine whether the request for modification is appropriate.

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Michelle O'Neil, a divorce attorney with O'Neil Anderson in Dallas, Texas recently posted about an app she helped create for the iPhone: Divorce Cost & Preps. She writes:

CNN Headline News featured the Divorce Cost & Prep iPhone App created by Dallas Divorce Lawyer Michelle May O'Neil and Fort Worth CPA Bryan Rice. The story originally ran on CBS11 in Dallas on Wednesday night, but by Friday The Morning Express with Robin Meade Show on CNN HLN picked up the story and it spread throughout the US and the world.

According to O'Neil, the app serves two purposes. First, a person contemplating divorce can assess the hidden and direct costs of divorce, such as the cost of providing two houses, two wardrobes for the children, or transportation costs for exchanging the children between houses. Second, the app gives divorce clients a list of information and documents to gather for their lawyer to assist preparation of their divorce.

Divorce Cost & Prep is available on iTunes for $4.99. Lots of apps for lawyers to use, but only a limited number geared toward clients. Congrats to Michelle and Bryan for their creative success.

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In December of 2009, Minnesota Judge Stephen Halsey (chambered in Wright County) launched his Minnesota Family Law Issues Blog, a terrific resource for both lawyers and litigants. As I understand, Judge Halsey's blog is the first of it's kind in Minnesota (from the judiciary). His unique perspective provides an interesting addition to the exchange of family law information online - including podcasts.

Judge Halsey's post entitled Post-Decree Modification of Maintenance: Pension as Income or Property caught my attention as I was reviewing the posts of others today. Judge Halsey writes:

A recent unpublished Court of Appeals decision, Hemp, 2010 WL 1657024, is worthy of review by family law practitioners and judges as it considers once again which portions of a maintenance obligor's pension may be considered as income or property when a motion to modify maintenance is brought. The Court discusses Lee, 775 NW2d 631 (Minn.2009), which held "a district court may include in its calculation of an obligor's ability to pay maintenance the portion of an obligor's monthly pension payment exceeding the amount the obligor is entitled to receive each month as marital property."

The Court of Appeals in Hemp approved the district court's apportionment of the monthly pension benefit between what is marital property and what is not. The district court, however, erred in its interpretation of the valuation method used in the original dissolution decree.

I think one lesson to be learned is that counsel and the court should make detailed findings of fact in the original decree as to the valuation method agreed-upon by the parties or as ordered by the court so that such method is clear to the court hearing post-decree motions on maintenance.

In a good number of the cases we handle, the issue of spousal maintenance is front and center. From my perspective, the most important part in settling a maintenance claim involves agreeing to a specific timetable for payment. A client may pay a bit more than they like, but the fact that there is a cap on their future liability is usually worth it. The benefit to the recipient? These timetables usually accompany a non-modifiable (even if their ex's income drops significantly) maintenance award.

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Spousal maintenance, formerly known as alimony, is one of the more difficult issues to tackle during the dissolution process.  With the exception of child custody, no other issue is as personal or emotionally charged to divorce litigants.

It is quite difficult to predict exactly how much spousal maintenance the court will award a particular party.  The court will examine a host of factors, and each play a part in the decision-making process.  For that reason, alimony is decided on a case-by-case basis. 

The court will examine the standard of living established during the marriage.  Based upon that standard, it will take into account the anticipated ongoing monthly expenses of each spouse. The question for the court involves whether these alleged expenses are reasonable under the circumstances.  The court will compare the expenses against the income of each litigant.  If a litigant faces a monthly shortfall, the party will have a need for spousal support. If a litigant faces a monthly windfall, they will have the ability to pay spousal maintenance.  These elements are measured against the length of the parties' marriage, the age of the parties, the educational background of the parties and the mental and physical health of the parties.

Once all of the elements are considered, the court will determine whether an award is appropriate, how much the monthly award should be and the length of time paying party will be obligated to support their former spouse. The longer the marriage, the more likely a permanent award of spousal maintenance will be granted.  With shorter marriages, the court may consider an award of temporary spousal maintenance so that other party has an opportunity to reeducate themselves, reestablish their career path and become self-supporting.

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In an opinion filed March 3, 2009, the Minnesota Court of Appeals affirmed a Dakota County District Court's reduction, not elimination, of husband's spousal maintenance obligation following retirement. Judge Halbrooks wrote, without dissent, in Wisness v. Wisness.

The Wisness' 30-year marriage was dissolved by a stipulated judgment and decree on September 17, 1993. The stipulated judgment and decree resolved the vast majority of the issues in their case, including alimony. As a result of the parties' agreement, husband was ordered to pay respondent $1,450 per month in permanent spousal maintenance.

Three years later, at age 56, husband had an opportunity to take early retirement from his employer. He moved the district court to terminate or reduce his spousal maintenance obligation. The retirement package that he was offered provided for a 50% reduction in income until he turned 62. The district court denied husband's motion, stating that while appellant could take advantage of the retirement opportunity, he could not avoid his obligation to pay support by voluntarily reducing his income. Despite that decision, husband opted for early retirement.

In 2007, then 67, husband moved the district court to eliminate his spousal maintenance obligation. He had remarried and was then working part-time as a school-bus driver, earning annual wages of $3,271 and $1,481 per month in social-security and Medicare payments. Despite a finding that husband retired in good faith, the district court declined to fully eliminate his alimony obligation:

It is fair and equitable to reduce [appellant’s] spousal maintenance obligation by approximately 50%, in light of both parties[’] present ability to meet their ongoing living expenses. Both parties will have to curtail their expenses or dip into their marital property to make up for the shortfall they each will sustain as a result of this modification of spousal maintenance.

Husband appealed. The Minnesota Court of Appeals affirmed, opining  that findings of fact concerning spousal maintenance must be upheld unless they are "clearly erroneous." The court found that the district court considered the statutory factors of wife's financial resources relative to her ongoing expenses. Relying heavily on the "standard of living" element of Minnesota's maintenance statute, Judge Halbrooks determined that wife's projected rent, medication expenses and health insurance expenses were reasonable.

Husband argued that he should not have to pay spousal maintenance because his ongoing monthly expenses were $183 less than his monthly gross (pre-tax) income. However, the court affirmed that, despite the shortfall, a mere reduction (as opposed to elimination) was appropriate and that the district court gave weight to the fact that both parties will have to curtail expenses or dip into their marital property in order to satisfy their monthly expenses.

At the end of the day, Wisness makes it clear that a maintenance obligor who retires in good faith may still be obligated to pay spousal maintenance to their ex. The safe bet for an obligor who has agreed to pay permanent spousal maintenance? Establish a specific timetable for termination of the obligation, if possible.

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The Minnesota Court of Appeals has affirmed a substantial spousal maintenance award.

In McCarney v. Hartleben, Ms. McCarney was stay-at-home mother who had taken some courses in an effort to obtain a degree in psychology. Dr. Hartleben worked as a surgeon, earning a net monthly income of approximately $30,000 on gross income of $600,000 per year.

Judge Stauber, in an unpublished decision, opined that the trial court did not err in granting McCarney monthly spousal maintenance payments of $13,000 conditioned on a reduction to $8,000 per month when she obtained the certification necessary to work as a licensed psychologist. Judge Stauber noted:

Findings of fact concerning spousal maintenance must be upheld unless they are clearly erroneous. In order to successfully challenge a district court’s findings of fact, the party challenging the findings must show that despite viewing that evidence in the light most favorable to the trial court’s findings . . . the record still requires the definite and firm conviction that a mistake was made.

The court did reverse and remand an award of $800 per month to Ms. McCarney to pay her life insurance premiums.

As referenced in other posts on our blog, alimony awards are based upon several factors, including the length of marriage, the financial need of the spouse seeking maintenance (comparing their anticipated income against their reasonable monthly expenses) and the ability of the spouse being asked to pay alimony to make payments to their spouse. The reasonableness of the parties' budgets is based upon the standard of living the enjoyed during the marriage.

In this case, the court indicated that the parties lived a "lavish lifestyle" and had no difficulty accepting the wife's projected budget of $13,000 per month. Given the husband's substantial earnings and the length of the parties' marriage, the court required him to pay a rather significant figure each month.

The good news for husband? Alimony payments are tax deductible. Given his tax bracket, he'll probably only suffer an out-of-pocket loss of approximately fifty-percent of the payment made to his ex wife.

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Today we wrapped up a complex case involving property division and spousal support. The litigants thought they were miles apart from each other, only to find a new best friend in Uncle Sam. With the assistance of a terrific tax accountant, we were able to craft a settlement that took full advantage of the Internal Revenue Code.

Here are eight tax tips to keep in mind as you move forward with your divorce:

1. Child Support. Child support is not income to the recipient and is not deductible for the payer. Keep this in mind if your spouse is seeking alimony. Child support payments that they receive are not taxable and, as a result, increase their net income each month dollar for dollar. As a result, the "need" of your spouse will be diminished and you may be able to argue that their imputed gross income exceeds their gross pay coupled with untaxed child support.
2. Alimony. Alimony is income to the recipient and is deductible for the payer. High income earners can reduce their taxable income by paying alimony. If your spouse's tax bracket is low, the government winds up picking up the tab for a good share of the alimony obligation.
3. Sale of Homestead. The sale of the marital homestead usually does not involve a taxable event. Capital gains (up to $500,000) from the sale of your marital homestead are not taxable if you've lived there for two of the last five years. Nor is a transfer of title to the residence, allowing your spouse to keep some or all of the equity. Many couples opt to forego alimony payments in, instead, pay a disproportionate property settlement to their spouse. In other words, they "buy off" alimony by giving a larger share of home sale proceeds, or equity, to their spouse. The result? No tax implications for either. Ideal for alimony recipients in a high tax bracket.
4. Filing Status. The status of your marriage on December 31 of the relevant year determines whether you file as single or married. If you are divorced by that date, you file as single for the entire year. If your case appears to be coming to a close near the end of the year, best to speak with a tax preparer about the consequence of holding up at bit or expediting matters. We find that courts are usually willing to facilitate bringing matters to a close by the end of the year if tax implications in doing so are substantial.
5. Dependents. While the law provides that the custodial parent is entitled to claim the relevant dependency exemptions, most couples agree to share them. Offering a non-custodial parent the right to claim the dependency exemption under the condition that their child support is current at the end of the relevant tax year provides them with incentive to keep current with payments.
6. Child Care Credit. Custodial parents who incur work-related child care costs can deduct up to 30% of the cost. It is for that reason that the child support guidelines usually require a custodial parent to assume responsibility for a greater share of daycare expense.
7. Liabilities and Refunds. Taxes owed, or refunds received, are usually treated as "marital" and are, therefore, split equally among the parties. In the heat of the moment, some spouses will intercept a tax refund and cash it without the other's knowledge. All funds must be accounted for and it is likely that if they do so their share of the final property settlement will be reduced proportionately. Because income is "marital," a tax liability is a shared responsibility.
8. Attorney Fees. Any fees paid to a lawyer for tax advice are deductible. Ask your attorney for to break out all billable time devoted to tax issues and you can save big.

Keep in mind, the Internal Revenue Code is constantly changing and you shouldn't rely on this post as the final word in your divorce tax planning.

If you involve a CPA in the team of professionals working on your case, they are sure to attack your situation from a unique perspective and offer creative ways to reduce your tax burden - leaving more money on the table for you and your spouse. Those extra funds may just be enough buffer to get your case settled.

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Minnesota is a no-fault divorce state. A divorce will be granted in Minnesota without the necessity of proving that one of the parties is guilty of marital misconduct. In earlier times, a party to a divorce was required to demonstrate that the other spouse was at fault for causing a breakdown in the marriage. Adultory was by far the most common basis, but others included domestic abuse, abandonment and an inability to consumate the marriage.

Today, a party to a divorce in Minnesota must merely demonstrate that there has been an "irretrievable breakdown" in the marital relationship. One spouse must simply acknowledge as much, and the court will grant their request to dissolve the marriage. A relatively low threshold - and a tough pill to swallow for those who feel that there is no "justice" in their case unless the court takes into account marital misconduct.

Potential clients often ask, "Should I fight the divorce?" Yes, if you intend to do so outside of the legal arena through counseling or therapy. Once it is obvious that the marriage cannot be saved, your resistence should be limited to that which is necessary to obtain a favorable court order. Not wanting the divorce can be used as leverage against your spouse if they are anxious to conclude matters. Often, the impatient spouse will buy a quick resolution by making an extremely attractive settlement offer. This strategy should be balanced against overdoing it. If you are fighting the dissolution process out of anger or spite, you are likely to cause significant economic and emotional harm to you, your spouse and your children.

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