Divorce Mediation Child Support and Taxes

In our last post, we talked about tax implications of equitable distribution and gave you some things to be aware of when discussing this aspect of your divorce with a New Jersey divorce mediator.  In today’s post I’d like to address the topic of child support as for couples with children, it serves as the financial foundation of your children’s lives and will go a long way towards ensuring they do not become the economic victims of divorce.

Before we begin, it is important to understand that child support unto itself is not a taxable event.  It is simply a transfer of assets from one party to another for the financial well-being of the couple’s children.  And while one of you is “writing the check” and actually making a payment to the other parent, both of you are paying child support in that the amount of the check one party writes is not meant to cover 100% of the expense of he children.  The receiving party pays for the children by using their own funding sources to also absorb a percentage of the children’s expenses as calculated on the New Jersey Child Support Guidelines.  So with child support, there is no declaration of it on the “check writing” parties’ tax return or no need for the recipient to claim it on theirs.  But that doesn’t mean there aren’t tax related issues when it comes to child support.

The first thing to be aware of is that of daycare costs.  Currently, parents of children who use daycare can get a “Child and Dependent Care Credit” on their tax return.  This can be worth a substantial amount of money to the party who receives such a credit so it’s important to discuss how this will be handled in mediation.  As part of the calculation of the New Jersey Child Support Guidelines, you and your NJ divorce mediator can make sure that while one party may receive the refund from the IRS, the other party is compensated in the form of lower child support payments to normalize the parties.  This in no way constitutes a reduction in support nor is it meant to encourage not paying the proper amount of child support. There may also be credits available to parents who send their children to summer camp as well so be sure to discuss this during mediation.

Next is the issue of medical insurance and expenses.  Currently child support covers the first $250 of medical expenses in any given year but what about for parents who are paying the health insurance premiums for their children and writing a check for child support to the other parent?  As is the case with child care, when calcuating the correct amount of child support, your New Jersey divorce mediator will be able to let each party know what the offset to the one party will be so that each party shares in the cost of providing health insurance to their children, even though it is one parent’s policy who is actually covering them.   You may also find yourself in a situation where one of you has a “MedSpend” account which allows for pre-tax dollars to be put into an account to be used for medical expenses.  And while there are no hard and fast guidelines here, again, this is an excellent topic to address with your mediator as there will be tax implications

In our next post, we’ll take a look at the impact of taxes on spousal support / alimony and what you should be aware of when speaking with a New Jersey divorce mediator.  Please note that this article is not meant to be construed as legal or tax advice and that since everyone’s situation is unique, it’s always best to consult with your accountant, mediation service, or NJ mediator regarding your specific situation.

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Equitable Mediation Services is a New Jersey divorce mediation practice serving Somerset, Mercer, Middlesex, Essex, Morris, Union and Hunterdon counties including the towns of Edison, Parsippany, East Brunswick, West Orange, Bridgewater, South Brunswick, Hillsborough, Livingston, Randolph, Maplewood, West Windsor, Summit, Plainsboro, Millburn, Morristown, Montgomery, Madison, Readington, Branchburg, Warren, Princeton, Metuchen, Lawrenceville, Pennington, Short Hills, Bernards, Bedminster and surrounding areas.