While some are still waiting to see what their checks will look like from the coronavirus stimulus package, questions continue to circulate as to what happens to the benefits for those who are recently divorced or who are planning on a divorce.
The stimulus checks are based on your tax returns and funds will be directly deposited based on the bank information from your 2019 tax filing. If you have not yet filed for 2019, then your 2018 information will apply. If you have filed jointly with your spouse for the 2018 tax year but have since separated, then it is important to file your 2019 taxes as soon as possible, as well as to notify the IRS of your updated status of “separated” or “single”.
This is the advice that many are receiving and although frustrating to some, it is important to remember that we are in an unprecedented time and thus, there are no clear cut rules that can be used to follow, or even to give guaranteed advice on.
Although no set of standards may be historically in place, there are some loose guidelines that couples can be urged to think about.
If You Are Already Divorced
Tax refunds are generally an asset subject to equitable distribution as part of the marital estate and more often than not, shared between the parties. If you divorced more than a year ago and have previously filed separate returns, then the stimulus funds should be paid to each individual (former) spouse. A couple going through a divorce and who are eligible to file joint tax returns will typically include tax returns (or taxes owed) in their separation agreement if this is an issue at the time it is being finalized. The most common method is parties sharing equally in whatever refund is received, but not always. If you have recently gone through a divorce and have filed joint tax returns for your last year of filing, it would be reasonable to simply share the stimulus monies received, as well.
If You Are Not Yet Divorced
If you are presently working through the divorce process, stimulus funds are still considered a marital asset. If you still share a bank account with your future ex and the funds are deposited to the joint account, you can use it to pay shared expenses or just divide it equally. This is also something that can be addressed in negotiations. If one spouse pays the majority of the bills, they may be able to argue for a larger share of it. You should NOT take the money and spend it without an agreement with your spouse, it will certainly come back to bite you.
What about the $500 payment for kids?
For every qualifying child 16 years or under, the stimulus payment will include an additional $500. For divorced parents, the parties' separation agreements will apportion the tax exemption for the children. Thus, the parent claiming the children for that year would be the parent likely to receive the benefit. Another common question that seems to be arising is with regards to an unfair allocation among the parents, i.e., the non-custodial parent claims the children for the year that was used to determine which parent receives the benefit.
For parents in this situation, given the lack of existing guidelines to follow, the government is merely urging parents to work out an agreement as to how this credit would be shared. Why is there not stronger guidance from the government on this? Basically, because there are much bigger issues that the IRS is focusing on. because the cost for attorneys to fight on this issue wouldn't be worth it and could potentially cost more than the actual benefit received itself.
What if someone owes child support or alimony?
Despite the uncertainty, there is one definite rule in place regarding tax refunds or stimulus payments. If someone owes child support, the Massachusetts Department of Revenue will get their hands on it before the taxpayer.
In the ordinary course, the IRS has the ability to withhold tax refunds in coordination with state collection agencies to pay child support, as well as alimony, that is in arrears. The stimulus bill does not waive offsets for past due child support or alimony. Meaning, if you owe back child support, then the IRS may intercept your stimulus check and you may receive a decreased amount. In the event that your check is intercepted by the IRS, your funds will be garnished and used to pay the custodial parent any monies owed to him or her.
Have more questions?
If you are in Massachusetts and have other questions on stimulus checks and how divorce or child support may affect them, don't hesitate to contact our team. (and sorry, if you are in a state other than Massachusetts you should ask an attorney in your state as it may be handled differently in your state).