The Pennsylvania version of Divorce Planner calculates Pennsylvania guideline child support and spousal support APL and prepares Pennsylvania child support worksheets (Court format) including a Melzer high income worksheet. Input is entered and then all analysis is performed through a single computer screen which allows "what-if" analysis. Different scenarios of support can be posted into the summary report of support cases directly from the analysis screen.
In Pennsylvania, the user can designate if APL is unallocated or allocated for taxes. There are different calculations for a final divorce or pre-divorce APL since the calculation of child support is different in a final divorce, because alimony is deducted from payor and may be added to receiver before child support is calculated in a final divorce. FinPlan output reports show the tax impact of alimony which is ignored in calculating guideline child support, but has a definite impact on the after-tax cash outcomes for the two parties.
The user enters a simple set of facts with easy-to-use menus. The software will then use this information to calculate Pennsylvania support, calculate all taxes, and generate 15 output reports based on a single set of data. The user can then do "what-if" analysis from the unique, single analysis screen in which input can be changed and resulting after-tax figures can be instantly viewed. Alimony analysis is simple because you see the results of different alimony amounts on a single screen and taxes are complete and accurate.
Creating Report of Different Support Alternatives
You use the Analysis Screen to review different support alternatives (add alimony, change who claims the kids, create family support - no child support etc.). You can then create a report with relevant support alternatives displayed side-by-side for use with clients and Courts. When support alternatives are created and posted, the user will then print the desired output reports. After-tax cash reports are available with annual or monthly numbers and are even available in detail or highlights formats. This Summary of Support Alternatives is not restricted to different alimony amounts - any variable can be changed allowing quick examination of the impact of claiming child dependency exemptions or family support (all alimony and no child support). A separate report allows for instant review of 3 alimony levels set up in a side-by-side report.
Output reports can be exported into Word for additional editing.
Online help answers questions on divorce taxes and guideline child support.
FinPlan Figures compared to Court PACES System
FinPlan tax calculations are very accurate and will result in different child support figures compared to the Court system now in use. (The current court system is using a very simplified tax calculation which may be easy to use, but may result in incorrect tax calculations. Taxes can be overstated resulting in a systematic under-estimating of guideline child support).
FinPlan software and training are provided FREE to all Courts around the US and it is hoped that more Pennsylvania courts would use FinPlan software to discover how the current court child support calculation system may be resulting in lower child support awards than the PA guidelines would call for. The differences are not insignificant and are completely related to the tax calculations.
FinPlan hopes that Pennsylvania family law practitioners will use FinPlan software to help clients and Courts understand the "real" after-tax figures in a divorce.
FinPlan Tax Calculations
Tax calculations are very accurate and software automatically calculates the federal Alternative Minimum Tax (AMT). The AMT is now very important in many high income divorce cases in that this "hidden tax" may significantly erode the expected tax savings in alimony cases from individuals being in different tax brackets.
Problems with Alimony in higher income cases
Many practitioners are going to be seeing some very counter intuitive after-tax figures in higher income alimony cases (income range for payor from $200,000 to $500,000. The tax law changes of 2003 are impacting many divorces in that the Alternative Minimum Tax (AMT) is now a factor by reducing or totally eliminating the favorable tax impact of alimony from different tax brackets. An annual alimony amount of $50,000 might have been expected to create joint tax savings from different tax brackets of $5,000 ($50,000 times 10% tax bracket difference) might now create only $2,000 of tax savings. Alimony may not be worth very much in some high income cases because of the Alternative Minimum Tax which is greater in states with high state and local tax rates. FinPlan software automatically calculates the Alternative Minimum Tax so you will always be aware if the AMT is eroding the value of alimony in a divorce.
Posting Different Tax Scenarios
5 different tax scenarios can be posted in a side-by-side comparative report making evaluation of the timing of divorce (this year vs. next year) very simple. A Married, Joint tax calculation is automatically prepared based on your case facts for the two individuals.
FinPlan Divorce Planner's Unique Capabilities to Keep You from Making Mistakes
FinPlan is the only family law software that will alert you before you make mistakes. You will be informed that alimony in lower income divorces may actually increase the joint taxes (from loss of Earned Income Credit), so you instantly know when NOT to use alimony (you can use non-taxable spousal support). You can instantly see the tax savings from either parent claiming the child dependency exemption and under 17 tax credit. You instantly know if the AMT is impacting your case. FinPlan doesn't just calculate numbers - it interprets numbers to show divorce professionals how to use taxes to increase the total after-tax cash available to the parties. Lower taxes equate to more total cash so there is more to share. FinPlan software has been showing family lawyers, mediators and financial professionals how to maximize cash in a divorce for over 16 years. Simply stated, FinPlan has a proven track record and several thousand satisfied customers all across the country.
Several Pennsylvania specific output reports are shown below. You need to have Adobe Acrobat Reader to view these reports.
Using FinPlan for the High Income Divorce Melzer Support - APL Order
John and Mary Wealthy are getting divorced and you are preparing for a temporary support hearing. John makes $500,000 per year and Mary works in the home. There are 2 children living with Mary (John has moved out) and the cash needs of the children are $5,000 per month. Cash needs of both John and Mary are $7,000 per month. There is $20,000 (annual) of interest income which is split for this proceeding. John is renting and Mary and the children are living in the family home where annual real estate taxes are $10,000 and mortgage interest is $20,000. John is paying $100 per month for health insurance for the children. Since this is a pre-divorce, APL order and John has left the home, Mary can file as Head of Household for taxes and John should be set up as Married, Separate. FinPlan has tax planning reports which will show how this tax filing is advantageous compared to a Married, Joint filing status.
APL Case
FinPlan Divorce Planner will automatically calculate support under a Melzer approach and this information will flow into the Pennsylvania child support form. You can have the software calculate APL as allocated or unallocated for taxes and if unallocated, you can have all taxable or all tax free. While Mascaro will apply APL to all income, the real risk in high income cases is that a Court may order the award to be all tax free (spousal support is also tax free). FinPlan allows you to quantify this risk, so the support payor understands the impact of an allocated or totally tax free order and can see why negotiating an all alimony APL settlement (no child support component) or a different mix of support than the Pennsylvania guidelines can be advantageous to both parties.
3 support alternatives are posted in the support summary report for this APL case. Case 1 in an allocated APL order which is the normal way a Court should approach this situation. It represents the minimum level that the support receiver should accept since this is probably what a Court would order. Case 2 is an unallocated order in which the Court has determined that all support should be tax free. The Court can look at the after-tax cash of the support receiver in the allocated order and see that she is getting only 38% of the total after-tax cash and she is under her budget needs. Case 3 is a negotiated APL settlement which is different mix of with less child support than Case 1 and significantly more alimony. From a tax perspective, in a high income case the attorney should be seeking a solution which allows more of the support amount to be taxed as alimony (saves joint taxes of the 2 parties) and may result in both parties getting more after-tax cash compared to an order in which the Court makes all the support non-taxable. In this case, using all alimony is not optimal since it triggers the Alternate Minimum Tax for both individuals. FinPlan shows this and a mix of child support and alimony is the tax minimization alternative for this case.
The risk to the high income support payor can be quantified. While Case 1 would be best for the support payor, if the risk of Case 2 is considered high, then the support payor can see that his cash in Case 2 could be as low as $188,000 compared to Case 3 where he has $205,000. FinPlan assists in quantifying very complicated financial alternatives, so that settlement proposals are more understandable.
The tax impact of the alimony must be considered in this analysis even though the Pennsylvania forms ignore this.
This analysis can be done in 15 minutes and the parties can see the tax savings over the typical allocated APL order. The key is understanding the tax impact of different approaches and being able to use "what if" analysis in settlement negotiations.
The printouts shown below represent 3 cases.
1. Melzer High Income APL case
2. Low Income Case showing value of child dependency exemptions and under age 17 child tax credit
3. Final Divorce in which different alimony scenarios are evaluated
You need to have Adobe Acrobat Reader to view these reports. If you do not have Acrobat Reader you can download a free copy at Adobe's Acrobat web site.