GE spouses in Connecticut should file their divorce lawsuits now?

“Connecticut Tax Boomerang” is a Wall Street Journal article on how General Electric is considering moving to a new state due to a change in the tax law:

making permanent a 20% surtax on a company’s annual tax liability—a tax on a tax—and for the first time taxing Connecticut companies on their world-wide income, rather than what they earn in the state.

Though not as lucrative for child support as Massachusetts, Connecticut is more favorable to a plaintiff than the majority of U.S. states (see the Connecticut chapter of Real World Divorce). Here are some features that other states don’t necessarily have:

  • unlimited child support in theory (though in practice total revenue of more than $ 4 million (tax-free) from obtaining custody of a single child might be challenging)
  • lifetime alimony
  • an expectation that a divorce plaintiff will stay out of the workforce until the youngest child turns 18

A GE spouse could be giving up a lot of cash if he or she waits for the company to move before filing a divorce lawsuit.

Kimberly Scott v. Stuart Scott is a recent example of Connecticut law in practice. Back in 2007, Kimberly Scott got a divorce judgment against Stuart Scott for $ 600,000 per year in taxable alimony plus tax-free child support for two children. At roughly the same time the defendant was diagnosed with cancer. Kimberly sued her ex-husband in January 2013 seeking (a) an increase in alimony, (b) to have her legal fees paid for the new lawsuit (Ellen Pao-style), (c)  an increase in child support paid to her, and (d) an order that the defendant be held in contempt of court for not paying a therapist bill.

The plaintiff emerged mostly victorious from the second lawsuit, with a March 2014 judgment (full text) by Judge John Carbonneau. She got a bump in alimony to $ 720,000 per year (taxable) and her remaining minor child will yield $ 102,000 in tax-free revenue. This latter cash stream is technically referred to as “child support” but the recipient apparently doesn’t have to pay any of the children’s expenses, notes the judgment, because the defendant pays for everything on top of the checks written to the mother. This includes private schools, extracurricular activities, 529 college savings accounts, and college tuition and fees. Dad pays for his ex-wife and her relatives to go on trips:

Plaintiff charges defendant for numerous expenses associated with the girls. ? Some include transportation, gas, clothing, hotel costs, gifts to teachers and counselors and trips with friends. ? When her mother or another family member accompanies the girls on a trip, plaintiff has included their costs and expenses for payment or reimbursement by defendant.

Plaintiff Kimberly Scott was 50 years old with a Bachelor’s degree. The defendant tried to suggest that she could earn at least $ 160 per week, but the judge rejected that assumption: “Neither party ascribes any current earning capacity to plaintiff.” Curiously, given that all of the money seemed to be coming from the father, the judgment reads “The court finds that both girls remain dependent on their parents for financial support even though Taelor is legally an adult.”

Judge Carbonneau noted the defendant’s terminal cancer, but found that it did not affect his ability to pay the plaintiff more money: “Defendant currently faces health challenges, but his income has not yet been significantly affected.” In case the cancer affected the defendant’s check-writing hand, the judge built in the government’s help in securing the plaintiff’s revenue stream: “All of defendant’s payments to plaintiff shall be secured by a contingent wage-withholding” (despite the fact that “There is no evidence that defendant has not paid his current alimony obligation.”).

The defendant died from his cancer (Washington Post), age 49, less than a year after this new revenue level was put in place.

[Note that typically a Connecticut court will order a divorce lawsuit loser to purchase life insurance with the winner as the beneficiary (legislative report) and therefore the defendant’s death may not have resulted in any financial loss to the plaintiff.]

What are the stakes for the spouse of a GE executive earning a multi-million dollar annual salary? The company could move to Germany, taking advantage of its manufacturing tradition and comparatively low corporate tax rates. According to the attorney in Baden-Baden whom we interviewed, the $ 102,000/year Connecticut child would become a $ 6,000/year Germany child (top of the “Düsseldorfer Tabelle”). Kimberly Scott’s 14-year marriage in Germany might have yielded a few years of alimony, but not the lifetime award that she obtained in Connecticut. The company could move to Texas, where child support is capped at $ 20,000 per year and alimony is capped at $ 60,000 per year.

Related:

Philip Greenspun’s Weblog

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