THE 60 DAY RULE

60 days.

 

That may be all the time you have after your divorce to request healthcare insurance coverage through your newly ex-spouse’s plan.

 

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives employees and their family members the right to continue group healthcare insurance coverage with the employer under certain circumstances, divorce being one of them. The coverage is variously referred to as “COBRA benefits,” “continuation coverage,” “COBRA continuation coverage,” or, simply, “COBRA” for short. If you’ve heard about “COBRA” from your ex’s employer, then there’s        a good chance this 60 day rule applies to you.

 

COBRA requires that group plans sponsored by employers with at least 20 employees in the year immediately preceding the qualifying event, such as divorce, offer the employee and the employee’s family the opportunity to extend their coverage, which would otherwise terminate. The extension varies depending on the qualifying event (for example, 18 months for loss of employment), but, for divorce, the minimum period is 36 months. The period begins from the date of the qualifying event, and it may terminate early if you do not pay the premium, the employer ceases to sponsor a group plan, the employer goes out of business, you obtain coverage with another group plan that does not contain any exclusions or limitations for pre-existing conditions, or you become eligible for Medicare benefits.

 

However, COBRA coverage comes at a high cost. The plan can charge you up to 100% of the premium cost plus an additional 2% of the cost as a fee to administer the plan to you. If you are divorced and under- or unemployed, the cost could exceed your monthly income. For example, a study from Families USA concluded that the national average monthly COBA cost consumed 84% of the average monthly unemployment benefit and, in nine states, exceeded that benefit. This is not to say you should avoid COBRA coverage altogether – you may qualify for federal assistance of up to 65% of the monthly premium. Be sure to contact your ex’ benefits office to determine whether you qualify.

 

You should contact the benefits office immediately. Ideally, before your divorce.  You will have only 60 days after your divorce to elect COBRA coverage. (There is a narrow exception that extends this coverage to 60 days after the employer gave you notice of the right to elect coverage, but this exception rarely applies. Most employers send form letters annually to notify employees of COBRA. You may have tossed this aside or filed it away without looking at it.) Within 14 days, the employer must provide you with materials to continue coverage, after which you will have 45 days to elect coverage. This is called the “election period.”

 

During this period, you can sit and do nothing, in which case, your right terminates; elect coverage, which will be retroactive to the date of the qualifying event, or affirmatively waive coverage, then change you mind with a written revocation, which will entitle you to coverage from the date of your revocation. If you elect coverage, be prepared for a hefty bill: you must pay the premium within the first 45 days, and it could be for coverage retroactive to your qualifying event, over 60 days, or more than 2 months, prior.

 

There are steps you should take during your divorce to take advantage of COBRA:

 

Contact the benefits office. Request current healthcare insurance information for your spouse’s plan. You may use a discovery device, such as an interrogatory, to your spouse or a records production device, such as a subpoena, to your spouse’s benefits office. At a minimum, you should request the plan summary, the cost per person covered, any optional coverages, the latest COBRA notice letter, and the name, address and telephone number of the individual who receives notices of qualifying events, such as your divorce. You might also request all information regarding federal programs, state programs or employer programs that assist individuals with paying the costs to continue coverage.

 

Investigate plans. Use the period before your divorce to investigate other healthcare insurance plans. Given the high cost of COBRA coverage, you may find an individual private plan is more affordable.

 

Request alimony to pay premiums. If you cannot locate a private plan or do not qualify for one, then you might use the anticipated high cost for COBA coverage as a basis to request alimony to help defray the costs. Be careful, however, because alimony will be taxable income to you.

 

Request an offset or deviation because you pay premiums. Similarly, you might use the high cost to obtain COBRA coverage as a bargaining tool to avoid paying alimony or to deviate from your state’s child support requirements.

 

Obtain a copy of your divorce decree.  Be sure to obtain an official copy of your decree, preferably the same day your divorce is final to avoid multiple trips to the courthouse or your attorney’s office, to send with your notice to the benefits office.

 

And, as always, review your options thoroughly with an attorney and the benefits office. Miss your 60 day notice period, and you could be foreclosed from continued coverage altogether; but, if researched and noticed properly, you could have an extra three years of insurance, and at a reduced rate.

 

CAN GUYS GET ALIMONY?

 

Talking to a guy about asking for alimony from his wife is one of the toughest parts of my, and I dare say all family attorneys’, job. Tough not because the concept is difficult to explain, but tough because most guys just refuse to do it. Isn’t that a woman’s thing, after all? In theory, no. In practice, sometimes it is. But should that stop you from making sure you get your fair share?

 

In no State is gender one of the written factors to consider when awarding alimony. In some States, the legislature or the courts have fashioned a framework based on years of marriage, household income and separate incomes to determine who receives alimony, if anyone, and for how long. In most States, though, there is no framework, and, instead, the judge is left to a much more fact-intensive analysis– and one more susceptible to disguising a gender preference.

 

In Michigan, where I practice, arguing for alimony is like putting numbers into a black box and waiting guessingly for what will come out. The judge has the discretion to award alimony, but the award “must be based on what is just and reasonable under the circumstances of the case.” What that usually comes down to is anyone’s guess, because “fair” means a lot of different things to a lot of different people. True, the award, if any, must balance the income and needs of the soon-to-be exes without impoverishing either and considering the parties’ respective income, ability to work, health, fault, need, and age. But the “right” balance is purely discretionary

 

The problem is, judges have so much discretion that virtually any award is acceptable on appeal. A discretionary ruling receives the greatest amount of deference on appeal. Moreover, although the judge must state findings of fact on each support factor, there are so many factors that it is easy to mask what is really punishment for being “lazy” or suspicion for “milking it” in the name of age, employability and potential to earn money. So long as the judges rationalizes the decision with the other factors (age, health, lifestyle, employability, marriage length, etc.), the award will survive appeal even if gender was one of the (unstated) considerations, or even the guiding one.

 

So, how many guys actually receive alimony? According to the US Census Bureau, in 2000 men made up only 4% of the divorcees receiving alimony. By 2009, the figure had quadrupled to 8%, but the study did not include men who could have obtained alimony and just refused to request it. The “quadrupled” figure might sound impressive, but, over the same timespan, men bore almost 75% of the job loss in the nation, women’s earning capacities increased to 80% of their working male counterparts, and women still received 92% of all alimony awards. See “The Controversial Rise in Manimony” by Hillary Stout.

 

Why the disparity? There are many reasons. I can tell you, from my practice, that a lot of guys just refuse to ask for it. Asking for alimony is perceived as a sign of weakness, further emasculating them in a relationship that was already lopsided and broken. To them I say, money is only part of a couples’ marital wealth – that you did not bring home the bigger paycheck during the marriage does not make you less worthy of money coming out of it; your unpaid work for the yard, home repairs, vehicles, grocery shopping, running errands, fixing everything on your wife’s “To Do List” for years, etc., is valuable and deserves compensation.

 

Even when they do ask for it, it’s a tougher job persuading the judge that they need it, as opposed to just want it for revenge. Judges are humans, and humans come with a host of preconceptions and assumptions about what men and women should and should not do – who should stay at home with the kids, who should work, who is capable of reviving economically from a divorce faster, etc. I am not saying judges do not apply the law, because most do, but that it takes more persuading when the man is the one asking for what is traditionally for women.

 

And if the guy is unsatisfied with the ruling, then what? There is usually an option to appeal, but the time and expense of an appeal for a guy who does not have enough money in the first place is a huge deterrent. Add to this the growing, gnawing feeling of just wanting to “get it over with” as the divorce drags on, and the guy is likely to toss in the towel and say forget it. He’d rather live in an apartment and eat noodles and Cheerios to survive than keep fighting with his new ex-wife.

 

Which brings me back to my original point: in theory, guys should get alimony; in practice, they usually do not. They do not, that is, unless they have someone bold enough and principled enough to advocate for them the right way. That means telling your opponent—your wife and her attorney – at the outset that this is an alimony case, we want alimony and we will pursue it. We will investigate her income. We want to know her budget. We are not afraid to try the case, and appeal it if we have to, and, if she doesn’t like that, she needs to come to the table and settle. It also means doing at least the following:

 

Prepare Your Budget – Where will you be living after your divorce? What will rent run? A mortgage? What will you spend for utilities, phone service, internet, transportation, insurance, medical care, legal expenses, your children? Can you meet these expenses on your own? Keep the budget realistic, because no one believes you will spend $500 monthly on clothing (if you do, you probably do not need alimony).

 

Value Your Services – What does it cost to hire someone for lawn care? Snow removal? Home improvements? The oil changes you’ve been doing throughout your marriage? Value these services to show how your unpaid contributions to your marital standard of living have contributed something of real value that deserves compensation.

 

Get Comparisons – Talk to divorced co-workers, family and friends, someone you know receiving alimony, and find out what worked in their cases. How are the cases similar to yours? Different? Who was the judge? And what arguments did they make to advance their cause?

 

Most of all, talk to your attorney. You want to know what the strategy is. What hearing dates you have and what you need to do to prepare for them, what the “hi” and “low” for negotiating will be, and whether (and how) you will participate. You want to know what law is on your side. Because if the law is on your side, and if you are not afraid to advocate for it, you’ve won more than half the battle.

 

In short, it takes stepping up to the plate like a man to get alimony.

THE THREE YEAR ALIMONY TAX TRAP: WHAT IS IT, HOW TO AVOID IT

 

As if paying alimony weren’t bothersome already, imagine receiving an unfriendly letter from the IRS forcing you into an audit and, worse yet, assessing taxes for three years’ of income you previously deducted. This may sound like a tax nightmare – you pay alimony, you deduct it like your CPA and/or your attorney said, and now you have to pay taxes for it – but, for many guys, it is reality. This often misunderstood and little discussed trap, the recapture rule, has them, and possibly you, coming up with money to pay taxes in addition to money for their exes.

 

The recapture rule forces the alimony payor to report as income the alimony payments he previously deducted, which means the payee is entitled to reduce from income the alimony payments she previously received. The rule applies when the payments decrease or terminate during the first three calendars years post-divorce and (1) the total payments made in the third year decrease by $15,000 or more from the payments made in the second year or                       (2) the payments made in the second year and the third year are substantially less than the payments made in the first year. Reasons other than the language of your divorce decree can cause the reduction, even reasons beyond your control, like a modification of the decree, failure to make timely payments, inability to make payments and a modification in the amount you pay because your ex no longer needs as much from you.

 

For example, if in the first year you pay $30,000 in alimony, then in the second year you pay $20,000 in alimony, but in the third year you successfully motion to modify your obligation because your ex has a new job and, as a result, you only pay $4,000 in alimony ($16,000 less than the second year), you’ve triggered the recapture rule. Be prepared to report the first year’s worth and the second year’s worth of formerly deducted alimony payments as income. And you thought you were doing yourself a huge benefit by petitioning to modify the alimony obligation in the third year.  . .

 

However, the recapture rule does not apply (1) for payments made pursuant to a temporary order, (2) if the payments terminate due to you or your ex’s death, (3) your ex’s remarriage prior to the end of the third year, (4) when the total payments made each year vary, for reasons not in your control, and are tied to a business, property, variable employment or self-employment. In these circumstances, the termination and variable amounts of alimony are foreseeable and assumed.

 

For example, if you agree in your divorce decree to pay 10% of your income received for your alternative energy business – a business that is in a state of flux – then you would not necessarily have to recapture those payments you deducted in the first year and the second year even if, in the third year, your payment is substantially less than the first year.

 

As another example, if for a five year obligation in the first year you pay that $30,000, then in the second year you pay that $20,000, but, in the third year, your obligation is terminated because your ex remarriages, you do not have to recapture the payments you previously deducted even though you are paying $0 in the third year.

 

Then how do you avoid the recapture rule? Discuss these tips with your attorney and your CPA:

 

No Front Loading: Front loading refers to paying a large amount of alimony in the first few years of your support obligation, maybe while you feel like you have the money and/or when your children are minors and you want to pay family support. The problem, with front loading is, if you reduce the payment substantially in the second year, you trigger recapture. If you do not, but then in the third year the payment is as little as $15,000 less than the second, you also trigger recapture.  Instead, consider extending the front loaded payments over more than three years or transferring an asset or assuming a debt in lieu of front loading the payments altogether.

 

Section 71 Payments: You could skip the deductibility problem altogether by making payments under IRC 71, referred to as “section 71 payments.” Under this rule, you are entitled to make a series of payments to your ex without tax consequence. The down-side is, the payments are not tax deductible to you.

 

Tied to Variable Uncontrolled Income: If your income is variable, and those variables are not within your control, then clearly state so in your divorce decree, and be prepared to provide proof to the IRS if an audit comes your way. In your decree, consider stating why your income varies, what factors cause your income to vary, that both you and your ex understand that your income varies and why and that your ex will confirm the same to the IRS. This will keep your ex from disagreeing with you – in an effort to deduct the alimony she previously reported as income – in the future if you are faxed with an audit.

 

Longer Schedule:  Extend your payments over more than three years, and be sure the amounts you are ordered to pay, and ideally do pay, do not decrease substantially from the first year to the second year and the third year or by more than $15,000 in the third year from the second year.

 

Increasing Schedule:  Rather than decease your payments over time, consider increasing them. This may make sense, for example, as your ex approaches retirement age, provided you are financially able to make the payments. Be cautious, however, of linking the increase to a loss of child support for your children – the IRS can decide that your “alimony” payments were actually child support because the amount you pay changed when your child support obligation changed. If so, then you will have to report that “child support” as recaptured income, too.

 

And, of course, always talk to your attorney and your CPA about the best alimony, child support and tax planning strategy for your case. If you do not have this conversation early and often, you may find yourself, three years after your divorce, recapturing all of those payments you deducted and hating the fact of paying alimony even more than you already had.