Young v. Young

• Decision Date: 10 April 1990
• Docket Number: Docket No. 112325
• Citation: 182 Mich.App. 643,453 N.W.2d 282
• Parties: Michael Ernest YOUNG, Plaintiff-Appellant, v. Judith Emily YOUNG, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 282

453 N.W.2d 282

182 Mich.App. 643

Michael Ernest YOUNG, Plaintiff-Appellant, v. Judith Emily YOUNG, Defendant-Appellee.

Docket No. 112325.

Court of Appeals of Michigan.

Submitted Dec. 12, 1989.

Decided March 19, 1990.

Released for Publication April 10, 1990.

John J. Grech & Associates, P.C. by Kenneth A. Skuzenski, Sterling Heights, for plaintiff-appellant.

Jerry W. Drowns, Utica, for defendant-appellee.

Before GRIFFIN, P.J., and J.H. GILLIS and SAWYER, JJ.

GRIFFIN, Presiding Judge.

Plaintiff appeals as of right from an order modifying an April 9, 1984, judgment of divorce. The 1984 divorce judgment had granted plaintiff, the noncustodial parent, the federal and state income tax exemptions for the parties' two minor children.

In March of 1988, defendant, the custodial parent, filed a motion for an increase in child support which also requested transfer of the income tax exemptions from plaintiff to defendant. Following a stipulation by the parties as to child support and child care expense levels, the lower court ordered a hearing as to the request for modification of the tax exemptions. Following the hearing, the lower court entered an order which transferred the tax exemptions for the youngest child from the noncustodial plaintiff to the custodial defendant. The tax exemptions as to the oldest child in favor of the plaintiff remained unchanged.

Plaintiff appeals arguing that federal and state law divest the circuit court of authority to so modify a pre-1985 divorce judgment. We disagree.

The divorce judgment in the instant case qualifies as a "qualified pre-1985 instrument" under Sec. 152(e) of the Internal Revenue Code [26 U.S.C. Sec. 152(e) ]:

(B) Qualified pre-1985 instrument. For purposes of this paragraph, the term "qualified pre-1985 instrument" means any decree of divorce or separate maintenance or written agreement

(i) which is executed before January 1, 1985,

(ii) which on such date contains the provision described in subparagraph (A)(i), and

(iii) which is not modified on or after such date in a modification which expressly provides that this paragraph shall not apply to such decree or agreement.

The present divorce decree was entered before January 1, 1985, and provides that the noncustodial parent (plaintiff) shall be entitled to federal and state tax exemptions for the parties' children. It is undisputed that the noncustodial parent (plaintiff) provided at least $600 for the support of each child during the calendar year.

The tax provision at issue requires a pre-1985 divorce judgment to have specifically awarded the dependency exemptions and recognizes only subsequent modifications which are consistent with the act. We construe the operative language to hold that a noncustodial parent may lose his or her exemption under a "qualified pre-1985 instrument" through subsequent modification, but that the noncustodial parent cannot gain an exemption by attempting to transform a nonqualified divorce judgment into a "qualified pre-1985 instrument." As stated in Baron, Modification of Divorce Decrees by Virtue of the 1984 Tax Amendments Relating to Dependency Exemptions, 8 U Ark Little Rock LJ 683, 686-687 (1985):

The new tax provisions make clear that a "qualified pre-1985 instrument" must have specifically provided for the allocation of the dependency exemption as of January 1, 1985, recognizing only subsequent modifications which may serve to remove a pre-1985 instrument from the status of being qualified. In other words, a noncustodial parent may lose his exemption under a "qualified pre-1985 instrument" (if he or she had one) through modifications but the noncustodial parent cannot gain an exemption by attempting to convert an existing nonqualified instrument into a "qualified pre-1985 instrument" through modification.

In the instant case, a "qualified pre-1985 instrument" was modified to transfer tax exemptions from a noncustodial parent to a custodial parent. For the reasons stated, we hold that such a modification is not proscribed by either the Internal Revenue Code or state law.

Finally, at this time we choose not to revisit our holdings in Stickradt v. Stickradt, 156 Mich.App. 141, 401 N.W.2d 256 (1986), Lorenz v. Lorenz, 166 Mich.App. 58, 419 N.W.2d 770 (1988), and Varga v. Varga, 173 Mich.App. 411, 434 N.W.2d 152 (1988), as such decisions are clearly distinguishable.

Affirmed.

J.H. GILLIS, J., concurs.

SAWYER, Judge (concurring).

I concur.

While I do not necessarily disagree with the majority's analysis concerning the modifying of pre-1985 orders, I do not believe we should resolve this issue on the narrow grounds on which the majority limits its analysis. Rather, I believe we should resolve the larger issue which plaintiff puts before us, namely, whether the state courts continue to have the authority to award the federal tax dependency exemptions for the minor children in light of the 1984 amendments to the Internal Revenue Code. For the reasons expressed below, I conclude that the prior decisions of this Court, and in a few other states, have incorrectly analyzed this issue and that, contrary to those decisions, state courts continue to possess the authority to award the federal dependency exemptions. Thus, while I agree with the majority's disposition of the matter before us, I do so for different reasons. ¹

I

Plaintiff first argues that the trial court lacked the authority to modify the judgment of divorce with respect to the allocation of the federal tax exemptions for the children. I disagree. Plaintiff argues that he is entitled to both exemptions since they were awarded to him in the judgment of divorce, that the judgment constitutes a "qualified pre-1985 instrument" under 26 USC 152(e)(4) [Internal Revenue Code Sec. 152(e)(4) ], and that the trial court is without authority to modify the provisions of the judgment with respect to the exemption issue. While I agree with plaintiff with respect to the first two propositions, ² plaintiff is incorrect as to the issue of the trial court's authority.

A. A brief history of IRC Sec. 152(e)

Prior to amendment in 1984, it was generally agreed that a state court had the authority, under IRC Sec. 152(e)(2)(A), to allocate the dependency exemptions for the children to the noncustodial parent in a divorce matter, subject to the IRC's requirement that the noncustodial parent must pay at least $600 per year in child support in order to claim the exemption. See Westerhof v. Westerhof, 137 Mich.App. 97, 103, 357 N.W.2d 820 (1984), and cases cited therein.

However, the Tax Reform Act of 1984 amended IRC Sec. 152(e) and that section no longer makes explicit reference to a "decree of divorce or separate maintenance" as did IRC Sec. 152(e)(2)(A) prior to amendment. Considerable debate has ensued amongst the various state appellate courts concerning whether the 1984 amendment divested the state courts of jurisdiction to allocate dependency exemptions in divorce proceedings. See McCarthy, Who Gets Dependency Exemptions in a Divorce?, 66 Mich BJ 1028 (1987).

The instant dispute may be resolved by determining whether the state courts were divested of jurisdiction over the tax exemption issue by the 1984 amendment to IRC Sec. 152(e). For the reasons discussed below, I conclude that the state courts continue to have the authority to allocate dependency exemptions, subject to certain procedural restrictions.

B. The 1984 amendment

As noted above, the Tax Reform Act of 1984 amended IRC Sec. 152(e) and established bright-line rules as to which parent may claim the dependency exemption for a child. Generally, the custodial parent gets the exemption. IRC Sec. 152(e)(1). This general rule is subject to three exceptions. The first exception allows the noncustodial parent to claim the exemption where the custodial parent has released the exemption to the noncustodial parent by executing a written declaration "in such manner and form as the Secretary may by regulations prescribe," which the noncustodial parent must attach to his or her tax return each year. ³ IRC Sec. 152(e)(2). The second exception is where a multiple support agreement is in place. IRC Sec. 152(e)(3). The final exception is where the exemption is allocated in a qualified pre-1985 instrument which has not been modified to expressly provide "that this paragraph shall not apply to such decree or agreement." IRC Sec. 152(e)(4).

Eliminated in the 1984 amendment was the provision that the noncustodial parent had to pay at least $600 per year per child in child support in order to claim an exemption when allocated to the noncustodial parent under a divorce decree or an agreement of the parties. ⁴ Also eliminated was the prior provision that the noncustodial parent was treated as having provided more than half a child's support, and thus entitled to the exemption, where the noncustodial parent paid more than $1,200 per year per child in child support and the custodial parent did not clearly establish that he or she provided more for the support of the child than the noncustodial parent.

It is this later change which seems to have provided the greatest impetus to changing the provisions of IRC Sec. 152(e). The IRS was becoming involved in a large number of disputes between divorced parents over which one contributed more to the child's support and, thus, which one was entitled to the exemption:

The present rules governing the allocations of the dependency exemption are often subjective and present difficult problems of proof and substantiation. The Internal Revenue Service becomes involved in many disputes between parents who both claim the dependency exemption based on providing support over the applicable thresholds. The cost to the parties and the Government to resolve these disputes is relatively high and the Government generally has little tax revenue at stake in the outcome. The committee wishes to provide more certainty by allowing the custodial spouse...