Loeb & Herman, S.C. ::: Appellate Court Addresses Support Issues in Vlies

Appellate Court Addresses Support Issues in Vlies

By Gregg Herman
As it appeared in the July 13, 2005
Edition of the Wisconsin Law Journal

One grey area of family law was recently make black-and-white by a recent court of appeals decision. Another area, however, may have been made a shade grayer. This is the first of two articles discussing the recent decision of the District II Court of Appeals in Vlies v. Brookman, No. 2004AP315 (Wis. Ct. App. Jun. 15, 2005) (recommended for publication).

In Vlies, the trial court, Ozaukee County Circuit Judge Paul Malloy, ordered Brookman, a lawyer in private practice, to pay family support of $7,500 per month for ten years (even though Vlies only requested eight years) in an amount which exceeded his monthly net income. The court also ordered that he maintain life insurance coverage for the benefit of the parties’ three minor children - an issue we will deal with in the next article. This article will discuss the order reversing the family support award.

The court of appeals summarized the legislative history of family support, assisted by an amicus brief by the Wisconsin Chapter of the American Academy of Matrimonial Lawyers, filed at the request of the court.

The appellate court found that while the trial court discussed the statutory factors that need to be considered in a support case, the trial court did not explain how these factors led to a support order of $7,500 per month for ten years. For example, the trial court did not explain its rationale for ordering fixed, monthly family support of $7,500 per month where Brookman’s monthly net income was $5,603 (he received annual bonus consideration in addition to salary, but this was not fixed income). In addition, the trial court did not either calculate child support under Wisconsin’s guidelines nor provide the necessary findings for a deviation from the guidelines.

Also, the ten year term may cause Brookman severe tax implications as the tax deductible payments could be construed by the taxing authorities as disguised, non-deductible child support. Therefore, the court of appeals reversed the family support order and remanded for further analysis by the trial court.

Laws That Create More Problems Than They Solve

Family support orders were once prevalent in cases with both child support and maintenance obligations. Not only is family support consistent with how the recipient spends support - most expenses, such as shelter and food are shared between the parent and the child - but it allows the tax code to be used for a societal benefit: to support a family.

Unfortunately, in 1985 as part of the Divorce Tax Reform Act, Congress complicated the tax aspects of family support by creating the risk of the payer losing deductibility if the payments were deemed disguised child support. Therefore, family support is rarely utilized today, either in settlement or by litigation. That is a pity, as it is still realistic in many cases and can be tax beneficial to both parties. A requirement that a trial court make a finding of child support pursuant to Wisconsin guidelines when awarding family support, while consistent with Wisconsin law, may arguably make that portion of the family support payment non-deductible.

The case illustrates another difficult issue created by legislation. Effective in 2002, after a great deal of debate, the Wisconsin legislature greatly restricted the use of percentage-expressed child support orders. Part of the compromise prohibited such an order if any part of the order was dollar-expressed.

This prohibition creates severe difficulties in cases where a payor has eligibility for a bonus. Previously, a dollar-expressed child support order could be made on base monthly income, with a floating percentage-expressed order for any variable income, such as a bonus. Such an order allowed the certainty of a set monthly support without either depriving children of the advantage of a bonus nor overburdening the payor if no bonus was paid in a given year.

The legislation that took effect in 2002 prohibited an order with both dollar-expressed and percentage-expressed features. As opined in this column at the time, this prohibition creates severe difficulties for parties where variable bonuses are part of the payor’s income. “New Support Laws Need Reality Checks”, Wisconsin Law Journal, January 2, 2002.

In Vlies, the trial court apparently amortized the bonus into the payor’s monthly income. The problem with this order, as pointed out by the court of appeals, is a support order which exceeds the payor’s net income. While, theoretically, the payor could save his bonus and parcel it out as support during the year, practically speaking most people are better at spending available money than they are at saving it. Too, during the first year of support, unless the divorce occurs immediately before the bonus being paid, the monies were probably spent already and maybe even divided with the payee as property.

Since most bonuses are variable, unless the entire support order would be percentage-expressed, the only practical way to handle bonuses under the present law would be to base support on assured, monthly income and schedule a hearing every year immediately before the bonus is due. The problem with such an order, of course, is the cost and inconvenience to the parties of an annual support hearing, not to mention what such an order would do to court calendars.

Since many payees do not want percentage-expressed orders since they offer no assurance that monthly bills can be met, one has to ask why the law prohibits an order which benefits both parties and makes a great deal of sense. As with the family support tax legislation, law making bodies - both federal and state - occasionally pass laws which do more harm than good. In the case of percentage-expressed orders, the legislature was reacting to political pressure from child support agencies whose computer tracking systems made percentage-expressed child support orders difficult to administer and unable to accurately reflect arrears in payments.

The result is that trial courts have to either ignore the law (which some do) or try to fashion an order which complies with the law in contravention to the best interests of everyone.

In summary, while Congress and the state legislature from time to time pass laws that create more problems than they solve, trial courts have to understand these laws and apply them in an appropriate manner. Failure to do so will cause the appellate court to reverse and force the trial court to try again, at great financial and emotional expense to the parties.

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