Dividing Coronavirus (CARES Act) Stimulus for Divorced or Separated Couples

Coronavirus Aid, Relief, and Economic Security Act (CARES)

The Coronavirus Aid, Relief, and Economic Security Act (CARES) was signed into law on 27 March 2020 and individuals are beginning to receive their stimulus payments. It is our understanding that the payments are being direct deposited into the account associated with the most recent years’ tax filing (2018 or 2019) or if there was not a direct deposit account associate with the most recent tax filing, then the a check is being mailed to the address associated with the most recent tax filing.

This raises many questions for divorced or separated couples about what to do with those funds and how those funds should be divided. While this is an unprecedented program and there does not appear to be  specific statutory authority nor specific case law which definitely answers the questions, we have analyzed the effect of the CARES stimulus payments using available information.

Historically, under North Carolina case law addressing income received after the date of separation, if the funds received are replacement income for income lost after the date of separation, then those funds are considered current income. We believe this is how funds received under the CARES Act stimulus program will be treated.

Since the CARES Act is a Federal program, the States, essentially, do not have authority to govern the program similarly to how the States do not have the authority over Federal programs such as Social Security. However, there are certain outcomes that may be accomplished through private agreements or through Equitable Distribution and Child Support actions.

We believe that if there is an agreement between spouses as to how the CARES act stimulus funds will be handed, that agreement would likely be enforceable by the court.

In the event that there is already an order in place or a properly executed agreement that deals with how taxes or tax refunds are shared, that might be applicable to the CARES Act stimulus checks. However, it would depend upon the specific circumstances and the specific language in the order or agreement.

Since the funds received via the CARES Act stimulus are likely to be considered income, in some situations receipt of those funds could trigger a reconsideration of child support and possibly a reconsideration of spousal support.

What about the $500 credit per qualifying child?

Since some of the funds under the CARES Act stimulus are determined by number of children, this presents a unique situation for divorced or separated couples. It is likely that the issue of who ultimately receives those funds associated with children will be an issue that can be resolved through a child support action.

In the event there is a child support order already in place, receipt of the stimulus funds, to

gether with other financial changes, may qualify as a substantial change in circumstances that could result in a modification of child support and/or a deviation from the child support guidelines to allocate the stimulus funds to the custodial parent.

If there has not yet been an order entered on child support, the receipt of stimulus funds is likely something that a court could consider in determining child support and will likely allocate those funds to the custodial parent.

Are the funds subject to Equitable Distribution?

The answer to that question depends upon whether the court treats the funds as replacement income for current income lost or as a tax refund. In the event the court treats the funds as replacement income, they would not be subject to equitable distribution. In that situation, should the funds be split? Probably, but there is likely no lawful mechanism to force the split (at least through the family court).

In the event that the court treats the funds as a tax refund, those funds could be subject to equitable distribution and treated as an asset. The question still remains, however, as to what a fair split of the funds received actually is. Is a 50/50 split fair? Is a split proportional to income fair? Those questions remain to be answered.

The issues raised by the CARES Act stimulus program for divorced or separated individuals are novel and are issues of first impression for the courts. There does not appear to be any specific controlling case law nor statutory authority that answers the questions of how any CARES Act stimulus funds should be divided between separated or divorced couples.

Recommendations

1. If you receive CARES Act stimulus funds and have not yet resolved child support, the funds received associated with children should be used by the parent who has primary physical custody of the children (if there is one) and expect that those funds will be accounted for in the final resolution.  If the parties share “50-50” joint physical custody, we suggest the funds be split proportionally to the parties’ combined gross incomes.
2. If you receive CARES Act stimulus funds that are not associated with children and have not yet resolved Equitable Distribution and you are the dependent spouse then you should keep those funds and expect that those funds will be accounted for in the final resolution. If you are the supporting spouse, you should equitably divide the funds and expect that those funds will be accounted for in the final resolution.
3. In the event that you have already resolved any issues of child support and equitable distribution, we recommend that you discuss the split of the funds with the other party and try to work out an amicable resolution.

Contact us for more information.