Interesting article in Texas Lawyer this week about the effect of online impersonation having growing relevance in Texas family law. People are increasingly impersonating spouses, paramours, and others online out of spite or to gain leverage. In 2009, Texas made it illegal to pretend to be another person online to harass, stalk, or defraud someone. For example, it would be illegal to create a fake website in an ex’s name and provide personal details about sexual acts. The law says a person commits an offense if he or she, without obtaining the person’s consent, uses the name or persona of another person with the intent to harm, defraud, intimidate, or threaten by (1) creating a page on a website or other commercial social networking site, or (2) sending messages through an existing website or social networking site. This offense is a third degree felony, punishable by 2-10 years in prison.
Distinguish these two scenarios, one illegal and one not. In the first, a husband learns that his wife frequents online dating sites and communicates with another man. In an effort to prove her guilty of cheating and to gain an advantage in the divorce, husband creates a facebook page as the other man, exports a picture of the man and puts it onto the page. Then, acting as the other man, the husband has a dialog with wife about getting together. This is illegal. On the other hand, consider that husband creates a website called “thisguyisahomewrecker”, posts the picture of the man and details the affair. The husband is not impersonating the man, but merely exercising free speech about the conduct. Assuming that the accusations are true so no defamation suit is viable, this conduct is not illegal.
2018-2019 change represents the new year 2019 three-dimensional rendering 3D illustration
The Texas Legislature convenes every two years, with 2019 being one of those. Each session, proposed new laws get introduced that will affect family law in Texas. It is expected that a bill will be introduced to remove no fault divorce and require proof of fault grounds for all Texas divorce and extend the waiting period to finalize a divorce (currently 60 days). Neither of these proposals are expected to gain much traction. Reform of the child protective services system will, however, be a hot topic for the legislative session given all of the litigation there has been criticizing how CPS handles matters ineffectively.
From 2018, most of the big changes in Texas family law came from the courts. The Texas Supreme Court clarified a conflict between the courts of appeals in various parts of the state on the right of a nonparent to intervene and ask for custody of a child. In re H.S. involved grandparents who sought standing to sue for custody due to the actual care, control and possession of the child for at least 6 months. The Texas Supreme Court gave a broader definition of “control” than some of the intermediate courts had been using, making it easier for a nonparent (like grandparent, step-parent, etc) to sue for custody.
Another significant change in 2018, also from the Texas Supreme Court, reinforced the binding nature of a premarital agreement. In re Marriage of I.C. determined that a clause allowing for forfeiture of all rights under a premarital agreement if a spouse challenged the agreement was a valid and enforceable provision.
The Texas Supreme Court has two justices with family law backgrounds, unusual in the history of the Court. The effect is that the justices are more comfortable hearing family law matters and are accepting discretionary review more often in family law cases. We expect this trend to continue for 2019.
The Tax Cuts and Jobs Act passed Congress last December and there is a lot of talk about how it will impact the tax situation for individuals. Few have considered the impact that the new law will have on divorce and child custody. (See How Will the New Tax Law Affect Your Divorce? )
Much of the commentary centers around the elimination of the tax deduction for alimony payments. The new law eliminated the deduction for alimony payments from taxable income. Likewise, the recipient of the alimony no longer must claim the payments as income. This new law only applies to divorce finalized after 2018. For alimony orders predating the law, any modification of the alimony order requires a statement as to whether the new law applies for deductibility/income inclusion. While this sounds like a win for alimony recipients, it actually demotivates a higher-earning spouse from agreeing to make alimony payments as part of a divorce settlement. Alimony payments were a useful tool in resolving divorces where one spouse was high wage earner and the other spouse was a lower wage earner. The paying spouse was motivated to receive the tax deduction where the receiving spouse would not be as heavily tax impacted. Additionally, the new law will effect premarital and postmarital agreements that predate the law because there is no consideration under the new law for agreements reached before the effective date of the law. The law applies based on the date of the divorce judgment.
Another issue arising from the new tax laws in the effect on valuation of a business interest in divorce. In many divorces, the business interest may be the main asset in the property division. However, the new law increase the cash flow of certain kinds of businesses due to lower C Corp tax rates (reduced from adjustable rates up to 35% to a flat rate of 21%). If all else is equal, the effect of this should raise net after tax income for the difference in the taxes. The exact effect of this on corporate valuation won’t be known until a new business tax return is filed under the new law.
Additionally, for pass through entities, owners of the business may now deduct up to 20% of income defined as “qualified business income” without limit for taxpayers whose taxable income does not exceed $315,000 for married joint filers and phased out up to $415,000. If income is above that level, the deduction is limited to the greater of 50% of W2 wages or the sum of 25% of W2 wages plus 2.5% of the unadjusted basis of all qualified property. For valuation purposes, the TCJA has widened the differences in the tax rates for corporate entities versus pass-through income, which may require adjustments to some of the assumptions applied for valuation purposes.
The new law allows 529 plans to be used to pay for elementary or secondary private school tuition, not just college. There is no change in the tax benefits of a 529 plan, but for 2018, up to $10,000 per beneficiary may be distributed to pay for schooling. This would raise an issue that needs to be addressed in the divorce settlement.
Personal exemptions have been suspended for tax years 2018 through 2025. During this 8-year period, divorcing parents cannot use personal exemptions for dependent children and do not need to negotiate over which parent gets to use the exemption. If the children are young enough, the exemption may return after the suspension period.
The TCJA significantly changed the child tax credit. It doubled the tax credit to $2,000 for each qualifying dependent child and make $1400 of the credit refundable. But, the credit phases out for married taxpayers earning more than $400,000. and, it expires in 2026. The phase-out threshold under the old law made the child tax credit irrelevant in many divorces, so increasing the phase-out threshold will make this a more significant issue.
The standard deduction has been doubled under the TCJA to $24,000 for married joint filers. The objective for this increase is to reduce taxes and simplify the filing process.Effectively this eliminated itemized deduction for most taxpayers. The limits on itemized deductions have been eliminated, which probably benefits higher wage earners. But the new law reduces the availability of the deduction for state and local taxes for individuals (but not businesses). So, for example, property taxes on a marital residence are deductible up to the cap of $10,000 for married joint filers, making much of property taxes on a high value home not deductible. The new law limits the deductibility of mortgage interest for loans originated after 12/15/17. It also eliminates the deduction for interest on home equity loans. This provision is set to expire after 2025. This increases the cost of financing a home by limiting the tax benefits.
A client recently asked about divorcing her husband who was pending felony criminal charges. Texas is generally a no-fault divorce state. This means that one spouse may seek and be granted a divorce based solely on the irreparable breakdown in the marriage relationship without showing anything else. However, Texas allows for a fault-based divorce decreed in favor of one spouse, which generally only matters when immigration is an issue or when the property available to divide in the marriage is significant. One of the grounds for such a fault-based divorce is the conviction of a felony that results in imprisonment for at least one year. Other fault grounds include cruel treatment, adultery, or confinement in a mental hospital for at least 3 years. It is important to note that fault grounds require proof of the ground and also proof that the grounds actually cause the divorce. In other words, it is insufficient to prove that a spouse was unfaithful during the marriage to get a fault finding. There must be additional proof that the unfaithfulness actually cause the marriage to end. The same would be said for cruel treatment or felony conviction. If the actions were tolerated for many years or ignored and the marriage continued, then fault grounds likely do not exist.
Overwhelmingly, most divorces are granted on no-fault grounds in Texas. The cost incurred of litigating over the fault grounds usually cannot be justified in the overall outcome. There has been movement among very conservative Texas legislators to negate the law allowing no-fault divorce and only permit divorces based on fault grounds. Although the simple concept of making divorce harder to get may sound like a good idea, no-fault divorce actually benefits everyone. No-fault divorce decreases the cost of divorce dramatically by providing one less issue to fight over. Think about it, to prove that a spouse is having sexual intercourse (the standard to show adultery), private investigators would have to be employed in every case. Further, for victims of domestic violence, having to provide proof and testify about the episodes of cruel treatment increases the emotional toil of the divorce.
House Bill 93 was filed in the 2017 legislative session to repeal no-fault divorce and require fault-based divorces in Texas. It was defeated, but many expect a similar bill to be introduced in the 2019 session. A survey by the Texas Bar association shows that 93% of attorneys are opposed to repeal of the no-fault divorce laws. 94% of attorneys believe that the repeal of the no-fault divorce laws would increase the attorneys fees and prolong the time it takes to get divorced. 64% of the Texas attorneys surveyed said that repeal of the no-fault divorce laws would give an advantage to a spouse opposing the divorce in the litigation.
The Supreme Court recently issued an opinion parsing out the practical concerns at play in a post-divorce life insurance case. Specifically, in Sveen v. Melin, a former spouse designated as primary beneficiary in her ex-husband’s life-insurance policy urged the Court to dissect the constitutionality of a Minnesota statute that automatically revoked such designation upon divorce. After review, the Supreme Court determined that revocation-upon-divorce statutes are indeed constitutional when applied retroactively.
To better understand the case at hand, consider the following facts: Mark Sveen married Kaye Melin in 1997 and designated her as the primary beneficiary of his life-insurance policy. In 2002, Minnesota revised its code so that the designation of a spouse as a beneficiary would automatically be revoked upon divorce. Mark and Kaye divorced in 2007, and much to the surprise of his children, he failed to update the beneficiary designation. So, when Mark died in 2011, the insurance company was uncertain how to proceed: should it pay the proceeds to Mark’s ex-wife (Kaye), or alternatively, to Mark’s children? Phrased differently, should the insurance company follow Mark’s original instruction, or alternatively, Minnesota’s new statute? Given this predicament, the insurance company asked the Court for help.
In an 8-1 opinion, the Court held that the retroactive application of Minnesota’s revocation-upon-divorce statute does not violate the contracts clause of the Constitution. According to the Court, the law in this case was meant to reflect the policyholder’s intent, thus supporting, rather than frustrating, the contractual scheme. Reasonably so, Mark, amongst many others, would probably not want his life insurance proceeds to pass to his ex-wife. Furthermore, the law in this case was unlikely to defeat the policyholder’s expectations, as the policyholder could not sensibly assume a beneficiary designation would remain in place post-divorce. Moreover, the law in this case purely functioned as a default rule, which the policyholder could undo at any point in time by submitting a new beneficiary designation form. According to the Court, the hassle, or lack thereof, of such negligible paperwork does not violate the contracts clause under its established precedent.
Like Minnesota, Texas has a similar statute under the Texas Family Code §9.301, which is why the Supreme Court’s decision is particularly relevant to us. In Texas, a divorce invalidates any pre-divorce designation of the former spouse as a beneficiary of life insurance unless (1) the decree designates the insured’s former spouse as the beneficiary, (2) the insured re-designates the former spouse as the beneficiary after rendition of the decree, or (3) the former spouse is designated to receive the proceeds in trust for, on behalf of, or for the benefit of a child or a dependent of either former spouse. It is important to keep in mind, however, that this state statute is preempted by ERISA!
This post comes from Saira Ukani, summer law clerk for O’Neil Wysocki. Saira is a law student at the University of Texas School of Law. She is interested in family law as a career after law school. We are happy to have her helping with our blog as well!