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I am going through a divorce and am about to begin mediation

in the hopes that we...
I am going through a divorce and am about to begin mediation in the hopes that we can settle this out of court. We have been married 35 years and I was a stay at home mom and did not work outside of the home. Additionally, I am unable to work due to health problems. We own a small contracting company and my husband has decided to support me by giving me a salary from the business even though I do not actually work.

My question is: what are the advantages/disadvantages of receiving spousal support after the divorce in this way, versus as alimony payment from my husband himself? I know that he won't be able to write this off as he could alimony payments, and I am paying taxes that perhaps I wouldn't have to, such as social security. Since I never worked I have not paid into social security. I was told by the accountant that it would take me too long at this point to pay in enough to reap any benefits. So the taxes I pay here will not benefit me.

Also, I really need to keep health care insurance and as an employee I could do that.
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2/2/2013
Meigs
Meigs, Family Law Attorney
Category: Family Law
Satisfied Customers: 1,346
Experience: I am well equipped to handle any family law problem you might have.
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meigs004 :

Hello, how are you today?

meigs004 :

Give me a moment to review your post.

Customer:

Fine thanks

meigs004 :

Ok, technically speaking, it appears from the arrangement that you have come to that it will not be much different in very many aspects. Alimony/spousal support is meant to support the spouse and to maintain the lifestyle that was instilled during the marriage. Being that you were married for 35 years, that is obviously long enough to become accustom to a certain way of life, therefore, he is liable to have to pay you spousal support. The benefit of him paying you as an employee on your that you can pay the taxes as an employee and seek a refund at the end of the year, as opposed to getting the spousal support in checks as reportable income. Also, if you agree to that arrangement, and he does not in fact pay you the support, you will need to make sure language is inserted into any potential agreement that his failure to pay you that support would result in potential contempt proceedings.

meigs004 :

Make sure he is not attempting to seek an indemnity type situation where he can run your spousal support through the company with it not actually being labeled alimony, in order to escape potential contempt suits if he does not pay.

meigs004 :

However, the benefits against the cons, seem to be minimal.

meigs004 :

You have already consulted the accountant, and you will not be able to pay enough into social security to reap any of those benefits, so I do not see a major advantage.

Customer:

Who benefits most from this arrangement?

meigs004 :

It does not seem to benefit either side. However, were I your attorney in this mediation, I would most definitely inquire as to his motivation to make such an arrangement, and would further ask him to disclose to you why he wishes to pay you as an employee rather than just making the alimony payments as ordered by the court, to which he could see a tax benefit.

Customer:

Do you have an idea as to which way would cost me more in taxes?

meigs004 :

Is he withholding taxes when he pays you as an employee?

Customer:

Yes, just as he does with all employees. I am however still covered under his health insurance and am not paying for that.

meigs004 :

That is the major benefit that I can deduce from it. Also, if he is withholding on the payout, that benefits you for tax purposes, because alimony/spousal support is income that has to be reported, and therefore, you can seek a refund.

meigs004 :

He obviously loses the benefit of deducting it, but that is his choice.

Customer:

I'm sorry could you rephrase that

meigs004 :

If he is withholding the taxes on the income, that saves you the hassle of saving portions of your alimony/support to pay the taxes on it, as you have to report it.

Customer:

I'm not sure what you mean when you said that is the major benefit -- what is the major benefit?

meigs004 :

The health insurance aspect.

meigs004 :

That benefits him, as he already has a plan for his employees, and it benefits you because you will have the health insurance.

meigs004 :

So it is beneficial to both parties.

Customer:

But the ss taxes have really increased and I don't see the point in paying for something I cannot use

meigs004 :

I understand that. That is why I described above, I do not really see the benefit of it to you, other than the health insurance, and why I would advise you to gather his motive for why he wants to do it this way, and make sure there is no other motivation.

Customer:

Do you have any idea which route would cost me the most in taxes?

meigs004 :

That would be better suited for a tax attorney, or the accountant, but from my perspective I would imagine just receiving the alimony payment, as opposed to being paid as an employee. As I stated, he can withhold taxes on the income as an employee.

Customer:

So you think I'd pay more in taxes via the alimony route?

meigs004 :

Yes.

meigs004 :

Will that be your only income?

Customer:

What do you think of the idea of splitting this into mostly alimony but some salary in order to receive health insurance?

meigs004 :

Obviously alot of considerations would go into your tax liabilities, and I do not have your income statements/ financial statements in front of me to give you an accurate answer in that regard. However, alimony is reportable, and if he paid you directly no taxes would be deducted.

Customer:

Yes this is my only income

meigs004 :

I think that would definitely be a viable option, and one that would be a good middle ground to toss out for consideration at the mediation.

Customer:

But I can set aside for that

meigs004 :

I do understand, but it does take the obligation away from having to do that if it is paid through the company.

Customer:

Do you think I would benefit from seeing a tax attorney? or what kind of accountant? I do not have my own accountant.

meigs004 :

A general accountant would do you some good with respect to that. A tax attorney as well, but you will most likely have to pay a consultation fee to discuss such issues.

Customer:

How much could a tax attorney help with a divorce issue?

meigs004 :

Just in the tax issues. He/she could not give any advice with respect to the divorce, just the tax consequences of going different routes as far as alimony or being paid as an employee. Plus a tax attorney you meet with in person could see your obligations, and assess your taxable situation.

Customer:

Thank you for answering my questions. I'm not sure I even know what I ought to ask. Can you think of any thing else I should look at? Are his motives pretty important? How do you think they can affect me?

meigs004 :

You are most welcome, and I have enjoyed answering your questions. I think I would, as it appears from the outside looking in that the two routes are similar, and it is always important to find out why an opposing party wants to do something outside the box, as opposed to the normal route.

meigs004 :

Especially when he is giving up the benefit of deducting the alimony payments on his taxes.

meigs004 :

Do you have any other questions?

Customer:

Thank you very much. I appreciate the discussion.

meigs004 :

Sure, if you do not have any other questions, please remember to provide a positive rating by selecting the smiley face and submitting so that I may be credited for our time together this evening.

Customer:

Do you know how I can print this off?

meigs004 :

Once you provide the positive rating, the chat will end, and then you can copy and paste our conversation to a word document or notepad. There is no print function to my knowledge so I tell every customer that is the best way to go about it.

Customer:

Thanks again

meigs004 :

Sure!

meigs004 :

Please do not forget to provide the positive rating prior to leaving and good luck

Customer:

Is it possible to ask one more question?

meigs004 :

Sure

meigs004 :

Go right ahead

Customer:

What is an indemnity situation?

meigs004 :

Indemnity is where an individual or corporation seeks to have an individual sign an agreement releasing them of the potential liability they would normally have were it not for the agreement.

meigs004 :

Does that make sense?

Customer:

So we would need to specify something -- right? What?

meigs004 :

Well, he can not indemnify himself to contempt proceedings. He would be liable for contempt proceedings if he did not comply with the agreement. Therefore, you would be able to seek court action against him for not abiding by the terms of the agreement.

Customer:

Or that he would have to pay himself if the company didn't?

Customer:

Specify that it is alimony?

meigs004 :

I would yes.

Customer:

Thank you again!

Meigs
Meigs, Family Law Attorney
Category: Family Law
Satisfied Customers: 1,346
Experience: I am well equipped to handle any family law problem you might have.
Verified
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Meigs
Meigs
Meigs, Family Law Attorney
Category: Family Law
Satisfied Customers: 1,346
1,346 Satisfied Customers
Experience: I am well equipped to handle any family law problem you might have.

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