Texas Court Denies Child-Support Modification upon Finding of Underemployment

In determining the Texas child-support obligation of a parent, the court may consider whether that parent is intentionally unemployed or underemployed.  If the court finds the parent is intentionally unemployed or underemployed, it may apply the support guidelines to that parent’s earning potential, rather than to their actual earnings.  Tex. Fam. Code Ann. § 154.066.  The court does not have to find the parent was attempting to avoid child support to find intentional unemployment or underemployment.

In a recent case, a father challenged the denial of his request for modification of his child-support obligation following a change in jobs that resulted in a significant salary reduction.  When the parties divorced in 2015, the trial court appointed the parents joint managing conservators and gave the mother the exclusive right to determine the children’s primary residence. The father was ordered to pay $1,600 in monthly child support and to maintain insurance for the children.

Mother and Father File Competing Modification Suits

The mother petitioned to modify the medical-support provision to give her the obligation to maintain medical insurance in 2019.  The father counter-petitioned to reduce his monthly child support based on a change in his salary.

The husband testified he earned $102,648 annually at the time of the divorce, but had since changed jobs multiple times.  Until 2019, his salary ranged from $108,000 to $202,000.  He had lost his job as a human resources director in October 2019 and took a new position paying just $42,000 in base salary after a period of unemployment.

Trial Court Denies Both Requests – Father Appeals

The trial court denied both parties’ requested modifications, finding, in relevant part, that the father had not proven there had been a material and substantial change in circumstances since the prior order.  The court also found he was intentionally underemployed and that he had sufficient assets to pay the child support. The court further found the father had not shown a reduction was in the children’s best interest and that it was actually in their best interest for him to continue paying $1,600 per month.

The father appealed, arguing the trial court abused its discretion in finding he had not proven a material and substantial change in circumstances to support the modification. He argued the evidence showed his salary had significantly decreased and the current support obligation exceeded 50% of his net resources.

Appellate Court Upholds Finding of Intentional Underemployment

The appeals court found there was sufficient evidence to support the denial of the father’s request for modification.  The evidence of the father’s education showed he had a bachelor’s degree, a master’s degree, and half the credits needed for a doctorate.  He had been employed in a senior role in human resources from 2014-2019 and had earned between $108,000 and $202,000 during that time. After termination from his human-resources-director position in 2019 and several months of unemployment, he took a position with Charles Schwab with a $42,000 salary in April 2020. His start date for that job was not until August, but he testified that he did not look for other jobs during that period.  He also stated he considered that position to have potential for promotion and “growth.” The appeals court found this evidence supported the trial court’s finding the husband was intentionally underemployed.

There was evidence the mother averaged $516 per month for after-school care expenses during the school year, $448 per month for summer camps during the summer, $500 per month for extra-curricular activities, and $352 per month for tutoring.  She testified she would not be able to continue paying for these expenses in addition to the children’s basic needs with a reduction in child support.  The appeals court found this evidence was sufficient to support the court’s finding a reduction was not in the children’s best interest.

The appeals court found it was reasonable for the trial court to conclude the father had not met the burden of showing a material and substantial change in circumstances in light of the evidence. Finding the trial court had not erred in finding a modification was not warranted, the appeals court affirmed the order.

Are You Seeking a Reduction in Child Support? Call McClure Law Group Today

The issue of child support modification can be very fact-specific.  Whether you are seeking or opposing a modification, you need an experienced Texas child support modification attorney working on your behalf.  Schedule your consultation with McClure Law Group by calling 214.692.8200.

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Are Private Employers Ready for the New Sexual Harassment Laws in Texas?

Texas is considered an employer-friendly state, so it may come as quite a surprise that several bills that significantly impact sex harassment law passed, without fanfare, in the last legislative session, and go into effect today, September 1, 2021. 

More specifically, the legislature amended several sections of Chapter 21 of the Texas Labor Code, which includes the state’s version of Title VII, to be more in line with the laws of California.  Here’s what employers need to know:

First, the legislature amended Chapter 21 to provide that with respect to sexual harassment, an “employer” is a person who employs 1 or more employees or “acts directly in the interest of an employer in relation to an employee.”  

What does this mean and why does it matter?  

Until today, Chapter 21 has applied to employers with 15 or more employees; therefore, this amendment now covers virtually every employer with respect to sex harassment claims.  It also means that individual supervisors can be held liable for sex harassment, whereas prior to today, they could not.  

Second, the legislature expanded the timeframe for an employee to file a charge of discrimination for sexual harassment from 180 days to 300 days.  Conduct occurring before September 1, 2021 will be governed by the 180-day charge filing deadline.  

Why should employers care?

Because an employee now has nearly double the amount of time to file a charge of discrimination related to sex harassment.

Third, the legislature included what clearly appears to be a heightened standard for employer responses to sex harassment claims.  The new language provides that an “unlawful employment practice” occurs if there is sexual harassment of an employee and the employer or the employer’s agents or supervisors: (1) know or should have known that the conduct constituting sexual harassment was occurring; and (2) fail to take immediate and appropriate corrective action.   

Whether an employer’s actions to correct sexually harassing behavior were immediate and appropriate could, depending on how case law is developed, used, and interpreted, create fact issues precluding summary judgment for employers.      

But wait, there’s more…

These changes have far wider implications for all employers in relation to, by way of example only, sex harassment investigations, insurance coverage, policy updates, management training, and job descriptions.  

Contact me for more information on best practices for compliance.  

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Disputes about companion animals can make Texas divorces messy

Some of the messiest, most expensive divorce issues involve dependent family members. Parents with young children may fight bitterly for custody.

Many modern couples may have chosen to expand their family with the inclusion of a dog or a cat. In some Texas families, horses are a cornerstone of how the family lives and are important to individual family members.

The animals that you consider part of your family can easily cause as much conflict in your Texas divorce as human children could. What happens with your beloved animals during a Texas divorce?

In Texas, family law judges treat pets like property

In a small number of states, including California, the judge presiding over a divorce can give pets in-depth consideration. They might arrange for visitation or even shared pet custody if they believe that is in the best interest of the animal.

Unfortunately, that approach is not an option in a Texas divorce. Texas treats pets like possessions. They don’t have the right to have their interests considered in the legal proceedings. Instead, they have a value assigned to them.

If the judge believes the pet is marital property, they will make a decision that ultimately determines who keeps the animal. If they believe the animal is separate property, then the spouse who technically owns the pet will retain it after the divorce.

Couples may fight bitterly in court trying to establish that the animal should be theirs or to convince a judge to allocate it to them as part of the property division process. Such proceedings inevitably end with heartbreak for one of the pet parents involved.

There is a workaround available for some couples

It could be possible for you and your ex to arrange for shared pet custody or visitation. If you approach divorce collaboratively, you can negotiate a pet custody or visitation arrangement on your own terms outside of court.

You could include those details in the settlement documents that you file as part of your divorce proceedings. While a judge won’t take the time to create a shared pet custody arrangement, they can approve a settlement that includes such a plan.

Identifying the shared property that matters the most to you can help you push for a positive outcome in the property division proceedings of your divorce.

 

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Undercapitalized, but still veiled

“We are ... persuaded that, under Texas law, undercapitalization alone would not be sufficient to pierce the corporate veil.” Ledford v. Keen, No. 20-50650 (applying, inter alia, Ramirez v. Hariri, 165 S.W.3d 912, 916 (Tex. App.–Dallas 2005, no pet.)).

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Section 6700 Penalties – False or Fraudulent Statements

Promoting abusive tax shelters. Taxpayers and tax return preparers should be aware of the various penalties that exist and can be assessed for certain actions (or nonactions). One such action includes promoting an abusive tax shelter. In a previous blog, Freeman Law provided an expansive overview of tax shelter penalties: Tax Shelter Penalties: Listed Transactions and Reportable Transactions. However, in a recent memorandum, the Office of Chief Counsel of the Internal Revenue Service commented on what constitutes a “false or fraudulent” statement under Section 6700.

Section 6700, Generally

Under Subchapters A and B of 26 U.S. Code Chapter 68, taxpayers may be subject to certain additions to tax and assessable penalties. Taxpayers who promote abusive tax shelters can be subject to Section 6700 of the Internal Revenue Code. Section 6700 generally provides as follows:

(a) Imposition of Penalty

Any person who—

(1)

(A) organizes (or assists in the organization of)—

(i) a partnership or other entity,

(ii) any investment plan or arrangement, or

(iii) any other plan or arrangement, or

(B) participates (directly or indirectly) in the sale of any interest in an entity or plan or arrangement referred to in subparagraph (A), and 

(2) makes or furnishes or causes another person to make or furnish (in connection with such organization or sale)—

(A) a statement with respect to the allowability of any deduction or credit, the excludability of any income, or the securing of any other tax benefit by reason of holding an interest in the entity or participating in the plan or arrangement which the person knows or has reason to know is false or fraudulent as to any material matter, or

(B) a gross valuation overstatement as to any material matter,

shall pay, with respect to each activity described in paragraph (1), a penalty equal to $1,000 or, if the person establishes that it is lesser, 100 percent of the gross income derived (or to be derived) by such person from such activity. For purposes of the preceding sentence, activities described in paragraph (1)(A) with respect to each entity or arrangement shall be treated as a separate activity and participation in each sale described in paragraph (1)(B) shall be so treated. Notwithstanding the first sentence, if an activity with respect to which a penalty imposed under this subsection involves a statement described in paragraph (2)(A), the amount of the penalty shall be equal to 50 percent of the gross income derived (or to be derived) from such activity by the person on which the penalty is imposed.[1]

Chief Counsel Advice 202134016

On August 27, 2021, the Office of Chief Counsel of the Internal Revenue Service issued a memorandum (Chief Counsel Advise), in accordance with Section 6110(k)(3). The Chief Counsel Advice responded to an inquiry of what constitutes a false or fraudulent statement for purposes of assessing a Section 6700 penalty against a promoter. The general facts of the taxpayer’s situation are reproduced below:

X is an LLC that engaged in the promotion of micro-captive insurance transactions. In a typical micro-captive insurance transaction, a taxpayer attempts to reduce the aggregate taxable income of the taxpayer, related persons, or both, using contracts that the parties treat as insurance contracts and a related company that the parties treat as a captive insurance company. Each entity that the parties treat as an insured entity under the contracts claims deductions for premiums for insurance coverage. The related company that the parties treat as a captive insurance company elects pursuant to section 831(b) to be taxed only on investment income and therefore excludes the payments directly or indirectly received under the contracts from its taxable income.

Many of the documents X distributed to investors and potential investors in the micro-captive insurance transaction contain statements with respect to the allowability of deductions for purported “insurance premiums” under section 162, the excludability of such premium income under section 831(b), or other federal tax benefits such as eligibility of the captives to elect treatment under section 953(d).[2]

In its analysis, the Office of Chief Counsel noted the following:

There are two types of statements that fall within the statutory bar of section 6700(a)(2)(A): statements directly addressing the availability of tax benefits and those concerning factual matters that are relevant to the availability of the tax benefits. Advice and recommendations are considered statements for purposes of section 6700. False statements under section 6700 include representations that a plan qualifies for special tax treatment when the plan does not comply with the law.

Further, statements are false when assertions are not qualified and customers are not notified that following the advice could subject them to IRS scrutiny. Where a promoter has knowledge of the risks incident to a tax shelter, the promoter must clearly and unambiguously inform its agents, prospective clients, and current clients of that risk.

Statements in the context of micro-captive insurance transactions include opinions, promotional materials, reports, tax savings projections, or other statements (or materials relied upon in making such statements) that are false or fraudulent as to any matter material to exclusion of income under section 831(b) or tax deductions under section 162 for premiums paid by the insured.[3]

Conclusion

The penalty under Section 6700 may seem relatively small in comparison to other penalty provisions under the Internal Revenue Code. However, the activities described above are rarely performed in isolation. For those taxpayers involved in multiple organizing activities or sales activities (see Section 6700(a)(1)(A)-(B)), a $1,000 penalty may be assessed per activity. Moreover, with respect to “statements,” such statements may be oral or written. Written statements are certainly easier to point to, but taxpayers should be wary of all oral representations that he or she knows (or has reason to know) are false or fraudulent. Chief Counsel Advice 202134016 essentially prescribes a clear “warning label” when a promoter makes certain statements or representations.

 

Tax Defense Attorneys

Need help with tax issues? Contact us as soon as possible to discuss your rights and the ways we can assist in your defense. We handle all types of cases, including penalty cases. Schedule a Consultation Today!

 

[1] I.R.C. § 6700(a).

[2] IRS CCA 202134016 (Aug. 27, 2021).

[3] Id. (internal citations omitted).

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Dallas Bar announces Chief Judge Barbara M.G. Lynn as inaugural DBA Jurist of the Year

The Dallas Bar Association has named Chief Judge Barbara M.G. Lynn, of the U.S. District Court for the Northern District of Texas, as the inaugural recipient of the DBA’s Jurist of the Year Award. Lynn will receive her award at the DBA’s Bench Bar Conference in Horseshoe Bay, which is scheduled for November.

Lynn was nominated by President Bill Clinton to serve on the U.S. District Court for the Northern District of Texas in March 1999. She was confirmed in November 1999. Lynn became chief judge of the court in May 2016, being the first woman to hold the position.

The award was established to honor judges who make significant contributions to the legal community in North Texas and demonstrate high ideals, exemplary personal character, and judicial competence. The award will henceforth be known as the Barbara M.G. Lynn Jurist of the Year Award.

Lynn was recognized for her dedication to the betterment of the legal profession—ecouraging litigants to be mindful of times when young lawyers can conduct hearings before the court.

“I have thought for a long time there is more we can do to honor our judiciary,” said DBA President Aaron Tobin in a press release. “For those of us who practice in our Dallas courts, we know how fortunate we are to have—at both state and federal level—one of the strongest benches in the country. Our judges not only work tirelessly in the courtroom but also spend considerable time giving back to the profession and to our community. To create an award that honors and recognizes the great work of our outstanding judges is a natural thing for the Dallas Bar Association to do.”

For more information about the Dallas Bar Association, go to dallasbar.org.

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Rights, Consequences, Covid, and Estate Planning

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Dear Mr. Premack: My brother has unexpectedly died of Covid. He was just 61 years old and refused the vaccine. He never married or had children. He worked with lots of people, and that is where we think he got exposed. He was hospitalized for nearly three weeks. His broker called me after he found out about the death to say our mother was listed as beneficiary of a rather large brokerage account. But she died nearly five years ago, so the broker said the account would be paid to my brother’s estate. I know he never made a Will so what or who is the estate? How do I proceed from here? – T.F.

I am sorry to hear your brother died, especially since death by Covid has largely become a choice now that vaccines exist. Remember the saying that someone’s right to swing their arm stops where someone else’s nose begins? Your brother may have been exposed at work, as you suspect. His choice to avoid immunization and his subsequent contagion could have further exposed his coworkers, nurses, doctors, and family. His weeks in the hospital may have denied an ICU bed to someone else. The financial cost of his care will be borne in part by the taxpayers, in part by everyone on his health insurance plan, and in part by his estate.

Civil society is, by definition, a cooperative venture. Laws regulate our choices, and within that structure reside our freedoms. In the US, our freedom to choose is broad and is cherished, but is limited. Back in 1943 many Americans who traveled to Hawaii did not choose to go; they were in the military under the wartime draft. Their free choice was limited. Today, if someone wants to scuba dive in the Maldives but chooses to skip the Yellow Fever vaccine, they will be denied entry. If someone wants to fly to Vegas but chooses to skip the security line they will be arrested. If someone wants to function in our society but chooses to skip the Covid vaccine, they may die and/or may spread Covid to others.

Society’s laws and rules impact how we work, earn, spend, and benefit others with the accumulation of our wealth. If you choose to open a bank account (in the years after 9/11) you must give specific personal information to the bank. If you choose not to provide that personal information, they won’t open the account. All state governments have laws regulating how we pass our wealth, be it with a Will, a Trust, or by agreement with the custodian of funds like your brother’s brokerage. If someone chooses to ignore or misunderstands those laws, there are consequences.

Your brother, for instance, had a contract with the brokerage. The contract stated in part that if he died, they would pay his account to your mother as beneficiary. Another part stated that if his beneficiary was not alive, they would distribute the funds to his estate. If the brokerage makes any other choice, they are violating their agreement. They are not free to give his account to just anyone. If they do, they will be liable for the consequences. They do not want liability, and thus rely on the laws and rules of our society for their protection.

What, then, is your brother’s estate? Since he died without a Will or other voluntary estate plan, which was his free choice, his heirs must face the consequences. In this case, state law says that your brother’s estate is an administrative entity that must be created by a Judge at the request of an interested party. If you want to be that interested party, your next step is to hire and pay an experienced probate attorney to get you into the court system. Once there, the Judge will need to follow restrictive procedures to protect unknown heirs, determine the actual heirs, and appoint an administrator to manage the estate under bond designed to protect the heirs’ financial interests. The administration will also expose those assets to your brother’s creditors, who also have a financial interest to protect.

Your brother’s choice not to make a Will or Trust or other estate plan – or at least to update his beneficiary designation when your mother died – had consequences. He was probably not actively seeking those consequences but may have (a) avoided thinking about his mortality, (b) wanted to avoid lawyers, or (c) just misunderstood the system in which we all exist. He may have thought “no Will” meant “no probate” but that is not how the system works. He may have thought lawyers make things more complicated and expensive when in truth the right lawyer would have saved everyone time and money. He chose to avoid legal counsel and consequently you need legal counsel. Choices, even misunderstood choices, have consequences.

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Column published on August 31, 2021.

Paul Premack is a Certified Elder Law Attorney for Wills and Trusts, Probate, and Elder Law issues. He is licensed to practice law in Texas and Washington. To contact us, click here.

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