Your Ex and Your Bonus

Pretty amazing, huh? You really are expected to share your bonus with your ex! I know, I think that’s a bunch of hooey, too!

But here’s something CRITICAL to consider right off the bat: are your bonuses included in your W-2? This is important because your support payments are based on your gross W-2 earnings, and if your bonus is already included in your W-2 AND you’re ordered to pay her a percentage of your bonus, then you’re paying her TWICE for your bonus!!!

It’s not likely that anyone else will raise this issue (no one did in our case…or should I say, no one but ME!), so be prepared to raise it yourself.

Here’s our tale of woe:

My husband’s 7/23/03 Order After Hearing stipulated: “7. In the event Respondent receives any future bonus income as a result of employment, he shall pay to Petitioner an additional support amount equal to 23% of such bonus within 10 days of the date on which he receives any such bonus.”

He did as ordered and paid THE DEVIL 23%—or $1,120.79—of his 2003 bonus on 2/16/04, which he’d received on 2/6/04. But this order was stipulated in error. He should never have been ordered to pay THE DEVIL any part of his annual bonuses because they're already included in his W-2s and, as such, are already factored in to his monthly support payments. (!!!) This error wasn’t brought to his attention until I questioned it in 1/05. His attorney didn’t question it, the judge didn’t question it...and even he didn’t question it. In fact, no one considered that his bonus might already be included in his W-2!

This order was reversed in his 1/25/05 Order After Settlement Conference: "5. The order after hearing filed in this matter on 7/25/03, which sets forth the current support orders, requires Respondent to pay Petitioner 23% of any bonus income he receives. Respondent contends that his bonus income is included in the calculation of his gross wages and that to require him to pay an additional 23% of any bonus he receives results in a double calculation for that income for support purposes. Accordingly, Respondent’s obligation to pay Petitioner 23% of his bonus income is hereby stayed without prejudice…"

And while it is absolutely, 100% true that my husband's bonuses are, in fact, included in the calculation of his gross wages, it’s also very interesting to note that at no time was he ever made to substantiate this claim (note the language of his order: “Respondent contends that this bonus income is included in the calculation of his gross wages…”). Hmmm…

He, of course, was not reimbursed for any part of his $1,120.79 overpayment to THE DEVIL.

Tax Exemptions for Children: Sample Language

Be sure that your court order stipulates which parent will claim the child(ren) on his or her tax return. Some parents alternate years, so that the father claims the child one year and the mother the next. My husband has two minor children; he claims one child and the devil claims the other, so his order is written like this:

"TAX EXEMPTIONS FOR CHILDREN
20. Each party shall be permitted to claim one of the children on his or her income tax returns each year, with Petitioner ["the devil"] claiming Child 2* and Respondent claiming Child 1.* By January 31st of each year until Child 1* reaches the age of majority, Petitioner shall provide to Respondent a completed and signed Form 8332 – Release of Claim to Exemption for Child of Divorced or Separated Parents. By January 31st of each year until Child 2* reaches the age of majority, Respondent shall provide to Petitioner a completed and signed Form 8332 – Release of Claim to Exemption for Child of Divorced or Separated Parents."

*Your child(ren)'s name would be substituted for "Child 1" and "Child 2."

Form 8332 - Release of Claim to Exemption for Child of Divorced or Separated Parents is required for a parent with less than 50% custody to be able to claim the child on his or her tax return. You can download the form from the IRS website (http://www.irs.gov/pub/irs-pdf/f8332.pdf). You should also visit http://www.irs.gov/ to learn more about claiming a child who is a dependent of parents who are divorced, legally separated, separated under a written separation agreement, or who lived apart at all times during the last 6 months of the calendar year.

*IMPORTANT*: You won't be allowed to deduct your work-related childcare expense if your tax return doesn't reflect that your child lived with you all year. The IRS's reasoning is that if the child doesn't live with you, then you don't need childcare to be able to work. This, of course, if flawed thinking because many non-custodial parents are court ordered to share in the cost of work-related childcare. But the law is what it is.