8. Welcome back! We talked a little bit in an earlier Lesson about maintenance. Let’s take a closer look. The question for this Lesson is:
What if one parent is paying maintenance?
KRS 403.212(2)(B) tells us that maintenance is to be considered “gross income” for purposes of child support calculations. So, in this case, let’s say the judge has ordered Father to pay Mother $500 maintenance per month. Exhibit 8 is the new worksheet that takes into account the maintenance award. We add $500 to Mother’s side of the ledger as it is "gross income" attributed to her.
KRS 403.212(2)(G)(1) then tells us that “the amount of pre-existing orders for current maintenance for prior spouses to the extent payment is actually made AND the amount of current maintenance, if any, ordered paid in the proceeding before the court” is to be deducted from the payor’s “monthly gross income”. So, we know we deduct $500 from Father’s income on this worksheet as Mother will soon be a prior spouse. If he is ALSO paying maintenance to another PRIOR spouse under another court order, we know he is looking at a REAL NIGHTMARE, and we would also deduct the amounts he is paying her from his income on the worksheet. However, if he gets married and divorced again (don't laugh - it happens) and is ordered to pay maintenance to Spouse No. 3, that amount would not be deducted from his income with regard to Spouse No. 2.
Do you like to talk about income tax? Me neither, but any basic lesson on child support and maintenance must include a few words about taxes. Maintenance is deductible to the payor, and taxable to the payee. Child support is not.
And, in THIS case, Mother and Father are going to be in different income tax brackets, right? So, let's talk about how they can use this differential to save their family a considerable amount of money. To do so, they would re-allocate the amounts Father pays Mother in child support and maintenance. For example as in Exhibit 8A, they could agree to increase his maintenance to $1,000 per month, and reduce his child support to $450. Mother would then get a total of $1,450 from him, and $1,000 of it would be taxed at her tax bracket, which we will assume to be 15 %. Father would pay a total of $1,450 (instead of $1,386), but instead of deducting the $500 per month the judge ordered as maintenance, he would be able to deduct $1,000 per month at his higher tax bracket of let’s say 25%.
So, here is the impact over the course of the year:
Mother's Net at $500 per month maintenance and $866 child support
Maintenance: $ 500 X 12 months = $6,000
Child Support: $ 886 X 12 months = $11,518
TOTAL $17,518
Taxes: 15 % of $6,000 = $900
Net Payments to Mother (after taxes) $17,518 - $900 = $16,618
Mother's Net at $1,000 per month maintenance and $500 child support
Maintenance: $ 1,000 X 12 months = $12,000 Child Support: $ 500 X 12 months = $6,000
TOTAL $18,000
Taxes Payable on Maintenance Received: 15 % of $12,000 = $1,800
Net Payments to Mother (after taxes) $18,000 - $1,800 = $17,200
Father's Net at $500 per month maintenance and $866 child support
Maintenance: $ 500 X 12 months = $ 6,000
Child Support: $ 886 X 12 months = $11,518
TOTAL $17,518
Tax Deduction on Maintenance Paid: 25 % of $6,000 = $1,500
Net Obligation of Father (after taxes) $17,518 - $1,500 = $16,018
Father's Net at $1,000 per month maintenance and $500 child support
Maintenance: $1,000 X 12 months = $12,000 Child Support: $500 X 12 months = $6,000
TOTAL $18,000
Tax Deduction on Maintenance Paid: 25 % of $12,000 = $ 3,000
Net Payments to Mother (after taxes) $18,000 - $3,000 = $15,000
Compare the charts. If the parties agree to re-allocate such that Father pays $1,000 maintenance and $500 child support, Mother gets $582 more after taxes, and Father pays $1,018 less after taxes. There is room for further negotiation, but with their different tax brackets, it is apparent these parties can find a creative way to save money by working together on an advantageous allocation of maintenance and child support.
Now you know a little more about what happens when one parent is paying maintenance to the other.
What if one parent is paying maintenance?
KRS 403.212(2)(B) tells us that maintenance is to be considered “gross income” for purposes of child support calculations. So, in this case, let’s say the judge has ordered Father to pay Mother $500 maintenance per month. Exhibit 8 is the new worksheet that takes into account the maintenance award. We add $500 to Mother’s side of the ledger as it is "gross income" attributed to her.
KRS 403.212(2)(G)(1) then tells us that “the amount of pre-existing orders for current maintenance for prior spouses to the extent payment is actually made AND the amount of current maintenance, if any, ordered paid in the proceeding before the court” is to be deducted from the payor’s “monthly gross income”. So, we know we deduct $500 from Father’s income on this worksheet as Mother will soon be a prior spouse. If he is ALSO paying maintenance to another PRIOR spouse under another court order, we know he is looking at a REAL NIGHTMARE, and we would also deduct the amounts he is paying her from his income on the worksheet. However, if he gets married and divorced again (don't laugh - it happens) and is ordered to pay maintenance to Spouse No. 3, that amount would not be deducted from his income with regard to Spouse No. 2.
Do you like to talk about income tax? Me neither, but any basic lesson on child support and maintenance must include a few words about taxes. Maintenance is deductible to the payor, and taxable to the payee. Child support is not.
And, in THIS case, Mother and Father are going to be in different income tax brackets, right? So, let's talk about how they can use this differential to save their family a considerable amount of money. To do so, they would re-allocate the amounts Father pays Mother in child support and maintenance. For example as in Exhibit 8A, they could agree to increase his maintenance to $1,000 per month, and reduce his child support to $450. Mother would then get a total of $1,450 from him, and $1,000 of it would be taxed at her tax bracket, which we will assume to be 15 %. Father would pay a total of $1,450 (instead of $1,386), but instead of deducting the $500 per month the judge ordered as maintenance, he would be able to deduct $1,000 per month at his higher tax bracket of let’s say 25%.
So, here is the impact over the course of the year:
Mother's Net at $500 per month maintenance and $866 child support
Maintenance: $ 500 X 12 months = $6,000
Child Support: $ 886 X 12 months = $11,518
TOTAL $17,518
Taxes: 15 % of $6,000 = $900
Net Payments to Mother (after taxes) $17,518 - $900 = $16,618
Mother's Net at $1,000 per month maintenance and $500 child support
Maintenance: $ 1,000 X 12 months = $12,000 Child Support: $ 500 X 12 months = $6,000
TOTAL $18,000
Taxes Payable on Maintenance Received: 15 % of $12,000 = $1,800
Net Payments to Mother (after taxes) $18,000 - $1,800 = $17,200
Father's Net at $500 per month maintenance and $866 child support
Maintenance: $ 500 X 12 months = $ 6,000
Child Support: $ 886 X 12 months = $11,518
TOTAL $17,518
Tax Deduction on Maintenance Paid: 25 % of $6,000 = $1,500
Net Obligation of Father (after taxes) $17,518 - $1,500 = $16,018
Father's Net at $1,000 per month maintenance and $500 child support
Maintenance: $1,000 X 12 months = $12,000 Child Support: $500 X 12 months = $6,000
TOTAL $18,000
Tax Deduction on Maintenance Paid: 25 % of $12,000 = $ 3,000
Net Payments to Mother (after taxes) $18,000 - $3,000 = $15,000
Compare the charts. If the parties agree to re-allocate such that Father pays $1,000 maintenance and $500 child support, Mother gets $582 more after taxes, and Father pays $1,018 less after taxes. There is room for further negotiation, but with their different tax brackets, it is apparent these parties can find a creative way to save money by working together on an advantageous allocation of maintenance and child support.
Now you know a little more about what happens when one parent is paying maintenance to the other.
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