With the latest rounds of Covid-related stimulus checks, the federal government has now given most American families thousands of dollars. And since these funds are not regular tax perks, they almost certainly have not been addressed in divorce decrees, nor has there been time for appellate courts to provide us with guidance on how to handle the stimulus payments.
Last year, we wrote about the first CARES Act stimulus payments, which generally totaled $1200 per adult and $500 per child, with eligibility based upon 2019 tax filings. The IRS would send the payment to whomever claimed a particular child in 2019, and this would generally be considered a fair outcome – with multiple children, divorced parents were probably sharing exemptions so each would receive some funds, and for one child, the amount at stake was small enough not to justify fighting about.
Per an article in the Washington Post last month, a man was arrested for allegedly killing four people over a dispute with the mother of his baby over a $1400 stimulus check. With some common sense, and maturity by both parents in dividing the check, this tragic bloodshed could have been avoided.
The New 2021 Stimulus Payments
Bloodshed is never justified. But the American Rescue Plan payments this year are even bigger, and with more at stake, more divorced or separated parents will be fighting over the stimulus checks. First, how much are we talking about? The full payments consist of:
- $1400 per individual ($2800 per couple) Economic Impact Payment
- $1400 per dependent (all claimed dependents, not just qualifying children under 17).
It doesn’t take complex math to see that these payments can add up. Quickly. A separated couple with three kids who filed jointly on their last return could be looking at a $7000 check! And, to make matters worse, if the check is issued based upon the 2019 tax filing, the same parent who received last year’s CARES Act stimulus payment may also receive this year’s payment.
The threshold for full payments are:
- $75,000/yr Adjusted Gross Income for an individual,
- $112,500/yr AGI for Head of Household, and
- $150,000/yr AGI for married filing jointly.
There are other provisions beyond the scope of this post, particularly both expanding and raising the child tax credit. For full details, see the American Rescue Plan Fact Sheet from the U.S. Treasury.
How to Divide Stimulus Check After Divorce
What should happen to the stimulus payment depends upon your view of the payment:
- Intended to stimulate economy – if the purpose is to infuse more money into the economy, then neither parent should have any greater claim to the payment, and some kind of equal division would seem appropriate.
- Analogous to tax exemption – courts already allocate tax exemptions, so the parent who claims the child in a particular year would therefore receive all tax breaks for such child.
- Refund of Taxes Paid – if the stimulus payment is treated as a refund of taxes paid for the calendar year, then the parent who claimed the child that year should receive the payment.
- Intended to cover costs of raising child – under this analysis, if parents had equal time, then the stimulus payment should be shared equally, or if one parent has primary custody, then that parent should receive the full payment.
- Intended as relief to families affected by pandemic. If a parent lost his/her job during the pandemic, that parent has a greater need for the payment, and would therefore be a stronger candidate for it. And this is a stated purpose of the payments, per the Treasury Fact Sheet.
There is no right answer – if there were, this post would have led with it, and would be much shorter! The IRS will send the payment to the parent who claimed the child on his/her 2020 tax return, or if not yet filed, on their 2019 tax return.
This could, of course, result in anomalies based upon the timing of tax return filings. If neither parent filed yet for 2020, the IRS will use 2019 instead. If both parents filed their 2020 taxes, then the IRS uses that year. But what about parents who alternate claiming a child – one parent last filed in 2019, claiming the child, and the other parent filed the 2020 return already, claiming the child? The parent who filed for 2020 will receive the check.
As with our advice last year, it’s rarely going to be worth filing a motion and duking this issue out in court. $1400 per child is certainly nothing to sneeze at, but even with 2-3 kids, if your ex received $2800 to $4200, and the court ordered it divided, that would mean $1400-$2100 in your pocket. Regardless of who was right or wrong, how much in legal fees is it worth for the sake of a couple grand, particularly for a case where there is no clear answer, and therefore no assurance of success?
My own takeaway – the stimulus tax break logically follows who claimed the child, so whatever the IRS default for sending out the check would probably be the most likely outcome if a judge resolved the issue. Unless that meant one parent got all checks issue for the CARES Act last year and the American Rescue Plan this year. Plus, as indicated, I can certainly make arguments the other way as well.
Check During Separation
Fortunately, resolving an American Rescue Plan payment issue for a couple who has separated, but is not yet divorced, is much simpler, at least in Colorado. Because assets and debts in Colorado are divided as of the date of divorce, not separation, that $7000 stimulus payment in the hypothetical I mentioned above is a marital asset, just like a tax refund received prior to the decree of dissolution.
Courts typically order tax refunds divided equally when the issue arises. Or, if the funds are deposited into a marital account, then since that account is a marital asset, the account value will have increased by $7000, so in the end, each spouse receives $3500 more from the settlement.
Enforcing Division of Stimulus Check
The IRS will deposit the check into the account used for the 2020 tax return, if any, and if not, mail the check to the address on the return. If a check is mailed, enforcing an equal division of the funds is simple, because neither spouse can unilaterally deposit a joint check, so each spouse will need to sign, and can therefore insist on an equal division of the payment.
When payment is made into a marital account, it’s not uncommon for one spouse to control that account during the divorce process. If he/she spends the funds (Las Vegas trip?) immediately upon receipt, so the check cannot be divided, then as with any other asset, it’s an issue to raise at the final orders hearing. If the payment was legitimately used to benefit both spouses (e.g. paid down a marital debt), then that will probably be okay. But the spouse who spent all $7K going on vacation should probably expect the judge to give the other spouse a credit for that amount against the division of the marital estate.
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