Accountability For Misuse of Child Support Urged

January 12, 2012  |  No Comments  |  by admin  |  Legislative

Page 4 April 5, 1993 Cite as 7 Mich. L.W. 679


To The Editor:

I am submitting this Letter-to-the-Editor to assert that the time has arrived to demand accountability on the use of child support. Michigan has decided to “get tough” on the enforcement of child support and is on the verge of adopting draconian child support enforcement laws at both the state and federal levels. Such efforts have relied on numerous invalid assumptions which merit analysis before initiating actions which will have profound impact on payors of child support. This analysis will ask the reader to realize that unless accountability for child support exists, the best interest of the child is
ignored.

The primary appeal of strict enforcement of child support orders is the financial needs of children. Everyone agrees that children have financial needs which must met by their parents. However, if child support obligations are not used by the custodial parent to provide for the welfare of the child(ren), enforcement of child support obligations does not benefit the child(ren). Would anyone believe that our public policy should allow the recipient of child support payments to spend such funds on illegal drugs or on a luxury item for mother, e.g. on a new fur coat.

Very few noncustodial parents (and even fewer teenage children of divorce) believe their child support payments are all being spent on behalf of the children. Moreover, such child support only fulfills one of two parents obligation and should be augmented by the other parent’s financial support. Ironically, we only impose a legal obligation of support on the noncustodial parent.

We also assume the custodial parent is the best conservator of such funds and refuse to consider any alternative arrangements, even if the non-custodial parent has far greater financial skills and the custodial parent is a spendthrift. Which parent should be treated more harshly, a parent who spends child support payments received from the other parent on himself or a parent who fails to pay their ex-spouse the court ordered child support? Is a society concerned about the best interest of children if it imprisons parents (or revokes their auto and occupational licenses) who fail to pay their ex-spouse court ordered child support but fails to insure that such payments benefit the children. Why don’t we impose any sanctions on a parent who spends child support payments on themselves? We must either assume that such payments are always properly applied, that the cost of enforcement would be prohibitive or actually want to benefit the custodial parent and have little concern for children.

At the extreme upper end, Isaiah Thomas has a child support obligation of almost Two Hundred Thousand Dollars per year. Although the media reported that the mother of his child failed to obtain an increase, did anyone inquire how such funds were being spent? Does anyone believe all of such amount is properly spent on Isaiah’s child? As noted in the current issue of the Advocate, the journal of the Family Law Section of the American Bar Association (and the common complaint of divorced fathers) often the child support payments for one child is used for other children or even to support an extended family. Where the custodial parent remarries, particularly where additional children are born, the children of the first marriage are often neglected or treated less favorably than children of the second marriage. Sadly, children often are neglected and the child support paid for their benefit is spent on luxuries for the mother or to satisfy her addiction(s).

Experience with human nature has forced everyone to recognize that where accountability is absent, abuse can be assumed. Recent examples include the Oakland County Sheriffs office, the Michigan Legislature and Detroit’s Police Chief. If public officials cannot be trusted with absolute secrecy over the use of funds entrusted to them, why would anyone assume that the ten million custodial parents in our country would all be above reproach? Every reader can certainly list numerous additional examples of abuse that occurs when inadequate accountability exists. No other example of such blind faith exists in our society.

Whenever any individual is entrusted with money to be spent on behalf on a third party, an accounting of the use of such funds is the minimum requirement. Without such accountability, our tax law assumes that the funds constitute either taxable income or a gift to the recipient. The laws applicable to fiduciaries, partnerships, corporations, trusts and estates all incorporate a strict accountability standard. Perhaps the closest analogy exists in Social Security benefits paid on behalf a deceased parent for a dependant child. The surviving parent is required to deposit such funds into a separate bank account and to file an annual accounting on how such funds are spent.

If the social security office believes such accountability is necessary, is it any wonder that noncustodial parents feel abused by a system that doesn’t even allow them the right to ask how their payments were spent?

Without accountability, the right to receive child support does not exist!

The assertion that the cost of requiring an accounting would be prohibitive cannot logically be sustained. Accountability may actually save taxpayers money because many noncustodial parents are so angry with the system they know treats them abusively and fails to insure the money they pay is received by their children that they refuse to pay any amount, abandon their children, jobs and neighborhood. A fairer system would remove much of the anger and bitterness in divorce.

Accountability would partially diminish the financial reward to the parent that succeeds in preventing the child’s other parent from remaining actively involved in their child’s life and should promote cooperative parenting. Moreover, a law which allowed the noncustodial parent the right to an accounting but left the enforcement to the noncustodial parent would not inherently force the Friend of the Court to incur any costs. The requirement could be as simple as requiring a separate bank account, a percentage allocable to household expenditures without separate accounting and an annual accounting to the noncustodial parent of the balance. No enforcement costs need be assumed by the Friend of the Court and the sanctions for failure to account for such funds could be limited to repayment of funds taken without support. I have enclosed a copy of the accountability requirements for social security and revised language which would require accountability for child support. If you agree with this proposal, please advise the Family Law Section Council, your State Senator and Representative. _________ offered the following amendments to House Bill 4138:

1. Amend Sec. 33 to add a new section (3) to provide as follows:

(a) Whoever receives payment of money ordered by the circuit court under this subchapter for the use and benefit of a child and having received such a payment, knowingly and willfully converts such a payment, or any part thereof, to a use other than for the use and benefit of such child shall be guilty of a felony and upon conviction thereof shall be fined as deemed appropriate by the circuit court or imprisoned for not more than five years, or both. In the case of any violation described in the preceding sentence, including a first such violation, if the circuit court determines that such violation includes a willful misuse of such funds by such person, the circuit court shall also require that full or partial restitution of such funds be made to the child or a conservator appointed for such child.

(c) Any individual convicted of a felony under this section may not be a recipient of further payments of money ordered by the circuit court under this subchapter for the use and benefit of a child.

(d) If a court of competent jurisdiction determines that a representative payee has misused any child support paid to such representative payee, the Friend of the Court shall promptly terminate payment of child support benefits to such representative payee pursuant to this subsection and certify payment to an alternative representative payee or to the individual, if not a minor, or to a conservator for such child.(5)

(e) In any case where payment under this subchapter is made to a person other than the individual entitled to such payment, the Friend of the Court shall establish a system of accountability monitoring whereby such person shall report not less often than annually with respect to the use of such payments. The Friend of the Court Advisory Board shall establish and implement statistically valid procedures for reviewing such reports in order to identify instances in which such persons are not properly using such payments. The Friend of the Court may require a report at any from any person receiving child support payments on behalf of another, if the Friend of the Court has reason to believe that the person receiving such payments is misusing such payments.(6)

(f) The Friend of the Court shall include as part of its annual report required under ___________, information with respect with respect to the implementation of the proceeding provisions of this subsection, including the number of cases in which the representative payee was changed, the number of cases discovered where there has been a misuse of funds, how any such cases were dealt with by the Friend of the Court, the final disposition of such cases, including any criminal penalties imposed, and such other information as the Friend of the Court determines to be appropriate.(7)

Phillip J. Holman, Esq.

National Congress for Men and

Children, Michigan Chapter


The footnotes, below, were omitted from the published version of this letter:

1. “A taxpayer who receives an amount under a claim of right, without restrictions as to its disposition, has received income for tax purposes…”, RIA Federal Tax Coordinator 2nd, J-8000 and extensive cases cited in footnote 1. In fact, an excellent argument exists that under current Michigan cases which provide that no restrictions on the disposition of child support exists, all child support received is taxable to the recipient. The taxpayer does not have taxable income where he does not have an unrestricted right to the funds, but holds them as a conduit for either the payor or the payee. See RIA Federal Tax Coordinator 2nd, J-8004 and cases cited therein. Thus in Illinois Power v. C.I.R, 792 F2d 683, 689 (6th Cir, 1986) the court stated:

“Where …the taxpayer’s obligation to refund the money…is contingent, the money is taxable as income….The underlying principle is that the taxpayer is allowed to exclude from his income money received under an unequivocal contractual, statutory, or regulatory duty to repay it, so that he really is just the custodian of the money.” Thus the recipient of child support does not receive taxable income if there is an unequivocal statutory duty to use such funds for the children, but not otherwise.

Internal Revenue Code 71 provides in relevant part, as follows:

“(a) General Rule.–Gross income includes amounts received as alimony or separate maintenance payments…. (c)
Payments to Support Children.–

(1) IN GENERAL.–Subsection (a) shall not apply to that part of any payment which the terms of the divorce or separation instrument fix (in terms of an amount of money or a part of the payment) as a sum which is payable for the support of the children of the payor spouse.”

The above language led Commerce Clearing House to state in its explanation in Standard Federal Tax Reporter at 6095.09:

“It has always been clear from the terms of the statute that when payments are specifically designated by the terms of the decree, instrument, or agreement as a sum payable for the support of a minor child, they are neither deductible by the payee nor taxable to the recipient.

Prior to the Tax Reform Act of 1984, amounts were not considered ‘fixed’ unless the decree, instrument, or agreement specifically designated that such amount was designated as child support. The Tax Reform Act of 1984 overruled that portion of the Lester (referenced below) decision …”

for amounts reduced upon the happening of a contingency related to a child of the payor” (i.e. attaining a specified age, leaving school, etc.). Internal Revenue Code 71 (c)(2) treats the “amount of such reduction as an amount fixed as payable for the support of children of the payor spouse.”

In Merrill v. Commissioner 34 TCM 688 (1975) the court refused to consider the father’s argument that some portion of the payments designated as child support were never received by the children and were instead used by the mother for her own support and maintenance. The court cited Lester for the proposition that “Congress has established a hard and fast rule that the language of the decree is conclusive. 366 U.S. at 303…. To shift the tax burden from one spouse to the other on the basis of extrinsic evidence of the parties intent not embodied in the terms of the decree or incorporated in the agreement, or of their subsequent conduct would defeat this apparent legislative purpose.”

The Court failed to address the issue of whether the amounts would be included in the taxable income of the recipient if no legal obligation existed (as contrasted with intent or actual conduct) to use such funds for the benefit of the children. For other cases which considered only language in decree and failed to reach the issue of whether a legal obligation to use such funds for the benefit of the children existed, see Commissioner v. Star, 48 TCM 1063 (1984) ; Commissioner v. J. B. Platt, 51 TCM 49 (1985); Commissioner v. Walstatter, 63 TCM 2389 (1992). In Commissioner v. Lester, 366 U.S. 299 (1961)
the court held that in order for payments to constitute child support rather than alimony “the ‘written instrument’ must ‘fix’ that ‘portion of the payment’ which is to go to the children. Otherwise, the wife must pay the tax on the whole payment.” Importantly, the United States Supreme Court adopted the claim of right doctrine, stating at 366 US 303-304:

“One of the basic precepts of the income tax law is that ‘[t]he income that is subject to a man’s unfettered command and that he is free to enjoy at his own option may be taxed to him as his income, whether he sees fit to enjoy it or not.’ Corliss v. Bowers, 281 US 376, 378…(1930). Under the type of agreement here, the wife is free to spend the monies paid under the agreement as she sees fit. ‘The power to dispose of income is the equivalent of ownership of it. ‘ Helvering v Horst, 311 US 112 …(1940). Including the entire payments in the wife’s gross income therefore, comports with the underlying philosophy of the code. As we have frequently stated, the Code must be given ‘as great an internal symmetry and consistency as its words permit.’ (citation omitted).

It does not appear that the Congress was concerned with the perhaps restricted use of un-specified child-support payments permitted the wife by state law when it made those sums includable in the wife’s alimony income. Its concern was with a revenue measure and with the specificity, for income tax purposes, of the amount payable under the terms of the written agreement for support of the children. Therefore, in construing that revenue act, we too are unconcerned with the variant legal obligations, if any, which such an agreement, by construction of its nonspecific provisions under local rules, imposes on the wife to use a certain portion of the payments solely for the support of the children. The Code merely affords the husband a deduction for any portion not specifically earmarked in the agreement as payable for the support of the children.

As we read the 22(k), the Congress was in effect giving the husband and wife the power to shift a portion of the tax burden from the wife to the husband by the use of a simple provision in the settlement agreement which fixed the specific portion of the periodic payment made to the wife as payable for the support of the children. (citations abbreviated and emphasis added). Thus, in Lester, the court believed that the general rule under Corliss and Helvering v Horst was consistent with the rule of requiring inclusion in the wife’s income under Internal Revenue Code 22(k). Thus internal symmetry was maintained with a two prong standard the court considered. In order for periodic payments to be excludeable from a wife’s income: (1) the recipient must not have unfettered command over the use of such funds, rather there must be a legal obligation that such funds be used for the support of the children; and

(2) the agreement must expressly fix the portion of the payments which are to be used for the children.

The Tax Reform Act of 1984 overruled only the portion of Lester which required the agreement to “fix” the portion of the funds which are specifically allocated to child support in the agreement. The Act provides that payments of amounts which are reduced by the terms of the agreement upon the happening of an event related to the child, are be sufficiently fixed by the agreement to constitute child support. Thus such provisions satisfy the second prong of the standard announced in Lester. However, based on Helvering v Horst and the extensive cases which follow this pervasive and basic rule of tax law, unless a legal obligation to use such funds for the children exists, such amounts are taxable income to the recipient. In effect, such amounts are not “child support” as contemplated by federal tax law, unless state law imposes a legal obligation to use such amounts for the child. Any other construction would violate the rule that the Code must be given as great an internal symmetry and consistency as its words permit. It may be important to distinguish between amounts deductible by the payor as alimony and amounts excludeable from the recipient’s income. Even though amounts may not qualify as deductible as alimony by the payor and taxable as alimony by the recipient, under Helvering v Horst, the recipient receives taxable income if there is no legally enforceable duty to account for the use of such funds.

2. To avoid a power to obtain funds held in trust from being taxed as a gift to the holder of the power, a clearly measurable standard under which the holder is legally accountable is required, see RIA Tax Coordinator 2nd., Q-1931.

3. Derived from federal provisions applicable to social security benefits, 42 USC 408, which provides in relevant part as follows:

408. Penalties (a) In general

Whoever–

(5) having made application to receive payment under this subchapter for the use and benefit of another and having received such a payment, knowingly and willfully converts such a payment, or any part thereof, to a use other than for the use and benefit of such person; …

shall be guilty of a felony and upon conviction thereof shall be fined under Title 18 or imprisoned for not more than five years, or both. … In the case of any violation described in the preceding sentence, including a first such violation, if the Court determines that such violation includes a willful misuse of such funds by such person…, the court may also require that full or partial restitution of such funds be made to the individual for whom such person or entity was the certified payee.

4. Derived from federal provisions applicable to social security benefits, 42 USC 405, which provides in relevant part as follows:

405. Evidence, procedure, and certification for payments

(j) Representative Payee

(1) If the Secretary or a court of competent jurisdiction determines that a representative payee has misused any individuals benefits paid to such representative payee…, the Secretary shall promptly revoke certification for payment of benefits to such representative payee pursuant to this subsection and certify payment to an alternative representative payee or to the individual….

5. Derived from federal provisions applicable to social security benefits, 42 USC 405, which provides in relevant part as follows:

405. Evidence, procedure, and certification for payments

(j) Representative Payee

(1) If the Secretary or a court of competent jurisdiction determines that a representative payee has misused any individuals benefits paid to such representative payee…, the Secretary shall promptly revoke certification for payment of benefits to such representative payee pursuant to this subsection and certify payment to an alternative representative payee or to the individual….

6. Derived from federal provisions applicable to social security benefits, 42 USC 405, which provides in relevant part as follows:

405. Evidence, procedure, and certification for payments (j) Representative Payee

(3)(A) In any case where payment under this subchapter is made to a person other than the individual entitled to such payment, the Secretary shall establish a system of accountability monitoring whereby such person shall report not less often than annually with respect to the use of such payments. The Secretary shall establish and implement statistically valid procedures for reviewing such reports in order to identify instances in which such persons are not properly using such payments…. [T]he Secretary may require a report at any from any person receiving payments on behalf of another, if the
Secretary has reason to believe that the person receiving such payments is misusing such payments….

7. Derived from federal provisions applicable to social security benefits, 42 USC 405, which provides in relevant part as follows:

405. Evidence, procedure, and certification for payments

(j) Representative Payee

(D)(6) The Secretary shall include as part of the annual report required under section 904 of this title information with respect with respect to the implementation of the proceeding provisions of this subsection, including the number of cases in which the representative payee was changed, the number of cases discovered where there has been a misuse of funds, how any such cases were dealt with by the Secretary, the final disposition of such cases, including any criminal penalties imposed, and such other information as the Secretary determines to be appropriate.

Father Pays Best

December 18, 2011  |  No Comments  |  by admin  |  Fathers Rights

Schools Add Trauma for Children of Divorce

 

By Phillip J. Holman, Esq.

President, National Congress For Fathers and Children

To the editor:

Diversity concerns do not end with race, national origin, etc. The prejudice today towards noncustodial parents is reminiscent of the racial bigotry in Alabama in the ’30s, i.e. where awareness of the discrimination existed, it was considered a “God given right.”

One half of our students live within the emotionally devastating tug-of-war of their parents’ divorce. Recent publications suppress surprise that the attendant emotional scars are significantly more acute and long term than anyone expected. Although children aren’t supposed to like “being bounced around,” they were expected to bounce back quickly from divorce. Unfortunately, to fit in with their peers, children of divorce deny their feelings until they are expressed through substance abuse, pregnancy, etc.

The policy of our schools appears twofold: ignore the problem and maybe it will go away; and do not show any concern for the nonresidential parent. Families are forced, like the proverbial square pegs, into traditional family molds. Our schools actively discourage the involvement of both parents. For example, emergency cards, address lists and virtually all other forms only provide one space to list home address and telephone numbers. Such information (and in fact virtually all information, school work, etc.) Is sent home with the child on days least likely to be received by the nonresidential parent who traditionally is relegated to “visiting” on alternate weekends and Wednesdays.

After being told that the failure to turn in homework was the result of spending weekends with the nonresidential parent, most teachers have decided not to assign homework on weekends. Such a decision, albeit a short term solution which successfully ends the finger pointing, also serves to further undermine the parent-child relationship and attenuate the
nonresidential parent’s involvement and commitment to the child’s academic progress.

One current program is a series of support groups which reassures children that the divorce was not their fault. Unfortunately, the material provides substantial misinformation and stereotypical biases. The material presents the worst stereotypes about divorce. No mention is made of the gender based bias of our court system or that custody is to be based primarily on the best interest of the child. Our children aren’t informed of joint custody, that “custody” defines them as property to be awarded to the “better” parent or that “visitation” is as derogatory as any racial epithet.

The school does not want to “get caught in the middle” of the war. However, we are charged with creating significant contributors to our global society. How can we do this and continue to exacerbate the most traumatic experience of half of our students?

Phillip J. Holman

 


Thursday, March 21, 1991

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