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The global coronavirus pandemic is causing profound disruptions throughout our society, as people try to practice “social distancing” in the hopes of slowing the spread of the virus and the disease it causes, COVID-19. Family law cases in Texas, including divorces and child custody disputes, are largely on hold except for emergency matters. This has created a substantial amount of uncertainty for almost everyone involved. The federal government is offering some relief, but even that can cause confusion in the midst of a separation or pending divorce. At the end of March, the president signed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which provides assistance to individuals and families, small businesses, healthcare providers, and others. Here is a brief guide to what you should know if you are currently involved in a family law dispute.
The coronavirus pandemic is an unprecedented event in modern history. The CARES Act is also historic in its own way. At about $2 trillion, it is by far the largest stimulus package in this country’s history.
The bill includes loans to small businesses affected by the pandemic, along with grants and other benefits for healthcare providers. It offers a tax credit for employers who retain their employees during business closures caused by “shelter in place” orders. For individuals and families, the relief provided by the CARES Act includes expanded unemployment insurance, access to retirement accounts, and direct stimulus payments.
The CARES Act provides stimulus payments to “eligible individuals.” It defines this term to include anyone who is not claimed as a dependent by anyone else, and is not a “nonresident alien.” The law defines the payment as a tax credit, but in many cases people will receive it as a payment by check or direct deposit.
The amount of the credit/payment is based on the adjusted gross income (AGI) shown on each individual’s most recent federal income tax return, which would be for either 2018 or 2019. The maximum amount provided by the CARES Act is:
The CARES Act reduces the amount of the credit/payment for individuals whose AGI exceeds:
The reduction is equal to five percent of the amount by which AGI exceeds these amounts.
Suppose a person is not married, does not file as head of household, and had AGI of $80,000 on their last federal income tax return. The $1,200 stimulus payment would be reduced by $250, which is five percent of the difference between their AGI and $75,000. For anyone with AGI over $99,000, the amount of the reduction would be greater than $1,200, but the CARES Act specifies that the reduced credit may not be less than zero.
These credits/payments could cause complications in ongoing divorce or child custody disputes.
The IRS will send the payment to the address it has on file for the individual or couple. If it has bank account information from a prior tax filing, it will do a direct deposit to that account.
This could be an issue for a married couple who has filed their taxes jointly, but who is now going through a divorce. A direct deposit might go into an account that only one spouse currently controls. That money is undoubtedly community property, and must be accounted for in the divorce.
A similar problem could arise with the portions of a payment allotted for children. The payment will go to the address or bank account that the IRS has on file. This money is also community property. While the CARES Act does not specify that this money is intended for the care of the child or children, the fact that the payment is greater because of the individual’s or couple’s children gives it extra significance. Misusing or concealing the payment should have consequences in the divorce.
The IRS has set up a webpage where individuals can designate up to three bank accounts for their stimulus payment. This can help couples going through a divorce make arrangements to split the payment in advance. It can also, however, be misused, such as if someone attempts to redirect a payment from a joint account to their own account.
Like other tax credits or refunds, the Texas Attorney General (AG) may collect unpaid child support from the CARES Act’s stimulus payments. According to the AG, it will not apply stimulus payments to child support arrearages unless they are above a certain amount:
The IRS must send notification to an individual if it has rerouted all or part of a stimulus payment to the AG for child support arrearages.
Stacey Valdez is a board-certified family lawyer who practices in the greater Houston, Texas area. She represents people in divorces, child custody disputes, and other family law matters. At Stacey Valdez & Associates, you and your family will always be our top priority. We are committed to helping our clients with tireless advocacy, compassion, and support. Your first meeting with us is free in most situations. Please contact us today online, or give us a call at (713) 294-7072 to schedule a confidential consultation to discuss your case.