Thursday, August 20, 2009

Back to school - and tuition

Being a divorced or separated parent can add a whole new layer to the conundrum of how to finance a child’s education. In Pennsylvania, absent agreement of the parties, courts do not direct a parent to contribute to college expenses. In New Jersey, the law allows courts to order parents to contribute to post high school education expenses.

Before you negotiate this issue you should understand your options. Investigate financial aid - both loans and grants. Compare costs of different schools and do not forget to budget in extras such as books, commuting expenses, room and board and spending money. Some websites offer guidelines and tools to assist you:

The Basics - Financial Aid - www.fafsa4caster.ed.gov

Student Loans - www.finaid.org

Calculating Costs - www.collegeboard.com

Saving - www.savingforcollege.com

Wednesday, August 12, 2009

Don't forget the tax man

Routinely, during my initial consultations I recommend that clients consult with an experienced and qualified accountant throughout the divorce proceedings. Tax consequences can be a confusing and an expensive by-product of divorce.

For example:

1. Support of a spouse may be tax deductible to the payor and taxable to the payee.

2. Divorce can change your filing status -- so if you are a W2 employee, you may be over or underwithholding employment tax.

3. Although most transfers between husband and wife or incident to divorce are tax neutral, certain rules must be followed -- and failing to follow those rules can result in a large tax bill.

4. Withdrawing monies from a retirement account prematurely will generally result in both taxes and penalties.

5. Signing a joint tax return makes you jointly and severally liable for the taxes owed. Sometimes, you do not become aware of these problems until years later. And contrary to popular belief, Innocent Spouse Petitions filed with the IRS are not easy and not automatically granted.

This list is by no means all-inclusive. Always talk to your divorce attorney about tax consequences of a divorce. Additionally, have an accountant review any proposals, settlements or resolution so you are aware of tax implications.

Click here to read a story about a husband who claims that his attorney failed to advise him of the tax consequences of his divorce settlement -- and he ended up paying in the "mid six figures" in taxes!