Should you be generous in your settlement numbers? Watch my daily tip video that says don’t be too generous. I’m not trying to say be a pig and don’t give any money. There are certain ways to be generous and certain ways not to be. The problem is when you are generous the wrong way, you don’t really get the benefit of the generosity that you’re hoping to get.
Making Sure You Communicate
First, the main problems that you have when it comes to being generous is that if you haven’t communicated to the other side what the number is supposed to be and that you’re giving more than that number, the fact that you’re being generous is often lost and the other person thinks they’re simply receiving what they’re entitled to. What happens is that when you’re not able to do what you’ve pledged to do, it makes them feel like they’re just getting less than they’re supposed to (when it may be the number they were originally supposed to receive).
Second, and more importantly, your circumstances may change in the future. The economy may go down and when that happens, salaries go down, business related perks and benefits disappear, and income reduces if you’re self-employed. A lot of things can change quickly that makes what seem to be a good idea in the beginning a very bad one later. Also, your personal circumstances are going to change. You may find that you get into a new relationship, or you may start a new family. Those added costs are going to make what you agreed to, which was at the time good for you, much more difficult.
The Tip on Generosity
Here’s the tip on how to be generous if you’re going to do it. There’s certain things that I want to make sure you do in the proper order so that you get the benefit of doing what you’re trying to accomplish – giving more to your family, which is always a good thing.
- Figure Out the Determined Numbers: The first thing you want to do is find out what the numbers are supposed to be. If you have child support or alimony issues, find out (from an attorney if you can) what the numbers are supposed to be. Run your child support guidelines, putting them with different income figures. Look at different overnight parenting schedules so that you find out the range of where child support would be given your circumstance if you have more or less parenting time. Get a range of what alimony numbers would be if you’re going to be paying alimony. Any good attorney can give you a range. Now we can’t give you an exact number because it’s not an exact science, but we can tell you where it should fall, how many years it’s likely to be inside of a range, and what dollars it may or may not be.
- Fill Out Fictitious Tax Return: You also want to do a fictitious tax return. The laws for taxable alimony issues are changing in 2019 and it’s going to significantly impact how alimony is computed as to how it used it be. I’m having my clients run a fictitious tax return so that we can get a sense of what the new numbers will be. Alimony is now going to be on your net income whereas before it was on your gross income. The implications of the new tax law are likely going to be more impactful on the person receiving alimony than the person paying it, but you still want to know what numbers you’re talking about, so the fictitious tax return will help you figure that out.
- Look at Other Tax Issues: You may also want to look at some other tax issues about capital gains and transfer taxes, which normally aren’t applicable in these circumstances, but you may be able to make them so by using and agreeing to them so you can maximize the taxable benefits to them. I’m not going to go into depth about that issue, whether divorces are not taxable and how to make them taxable, as it’s outside of the scope of this blog. If you’re interested in learning more, either give me a call or talk to an accountant.
If you are going to do more than you’re supposed to and if you do want to be generous and take care of your family, that’s great. I’m not suggesting that you not do that, but first I think the best thing to do is agree to what the number is supposed to be. You can always be generous in the future, you can always make an indication to the other party that you plan to be generous. You can use language to suggest it, but you might want to consider only agreeing to the actual numbers that you’re supposed to. Second is if you’re going to give more than the number you agreed to afterwards, put it on the check memo what it’s for (extra child support, additional alimony payments, whatever it may be). If there’s a point in time later that you’re reviewing your alimony numbers or your child support payments, you can show these extra checks and have it counted towards your actual obligation, which gives you sort of a credit.
A lot of people resist this, but I recommend paying through a probation because it’s easier if you’re going to be giving extra money to just send another check in the probation. It’s automatically calculated and added to it. If you are paying, let’s say $100 a week for child support, and you decide you want to send another $100 because summer camp is coming up, send it through child support, or through probation, and you’ll have a $200 payment for child support. This way, you’re always ahead of the game, and the other person is still getting the extra money that you intended.
You may not want to do that and you may not actually agree to more. If you’re going to put it into your consent order or your settlement agreement and you want to actually have the number be increased from what your obligation is, there are a couple of things you need to do. First, make sure the agreement, or the consent order, states what the number was supposed to be and that you’re increasing the number so that it’s reflected later that you’re giving more when they’re reviewing it. Second, make sure the reason that you’re putting more into the number is reflected in the agreement. If it’s simply because you want to be generous, that’s great. If it’s because you’re making X amount of dollars, then put that in. If it’s because you’re not paying for healthcare through your employer, or you’re making X amount of dollars through being self-employed, put that in there.
If those circumstances change in your future and you need to revisit the agreement, a judge, a mediator, or even the other party will understand what went into this agreement. It will be easy to show the change when your future review requires an adjustment. Put the reason why you’re agreeing to more in there aside from if it’s income related. Also put in and get some reason in return for it. If you are giving more child support, you get more parenting time. If you were paying more alimony, indicate the tax benefits that you’re receiving so that those circumstances change in the future, unrelated to your circumstances, but if the laws change, or the parenting schedule changes, then that similarly would be reflected in the agreement and you can use that as reason to change.
Be Generous – Make it Clear
I’m not saying not to be generous. As a matter of fact, I would like you to be generous. I think it’s actually good for you and it’s good for your family. That being said, you want to make it clear that you’re being generous because circumstances will change and you can’t contemplate all of these potential changes because there’re too many of them. You do want to make sure that your plan and your documents are clear so that when the circumstances change, you can go back and change the payments.