Sunday, February 28, 2010

So are we really allowing foreign companies to control our elections?

If you have been watching the news talk shows or reading blogs, you might think that as a result of the recent United States Supreme Court Opinion, Citizens United vs. Federal Election Commission, we handed over the integrity of our elections to the highest bidder.  If you read the opinion however, the relatively narrow holding does no such thing.  I have linked to the opinion above.

If you would rather not dig into that lengthy discourse, you can read Citizens United: A Tempest in a Tea Cup, an article written by my very own brother, which lays out the highlights in a non-partisan and sometimes very witty fashion.  Enjoy.

Saturday, February 27, 2010

Read, read and re-read

“It is better to sleep on things beforehand than lie awake about them afterward.”



― Baltasar Gracian


By the end of divorce litigation (or child custody or support litigation), parties are often so fatigued that they will sign an agreement just to put the whole sordid mess behind them.  However, you are signing something that will have implications for a long time to come.  I always tell people to read their proposed agreement, put it in a drawer and forget about it for a few days, and then read it with fresh eyes.  Rushing through the very last step might cause you expense and grief later.

Friday, February 26, 2010

Wait, how do you know so much about me?

Again and again, I warn clients (and potential clients), about the dangers of posting too much information about yourself on-line.  Social on-line networking can be a great way to keep in touch with old friend and meet new ones.  However, since you never know who is reading your material or viewing your pictures, a little self-editing and filtering is in order.  And -- if you are going through a divorce or any type of litigation -- realize that anything you say can be used against you.  I have mentioned this before - here and here.

My friend, Eric Trager, published an opinion piece on Facebook in today's Philadelphia Inquirer that addresses the current tendency to post constant updates about the minutiae of your life.  He uses wit, wisdom and creativity -- and I envy his writing abilities!  Read the piece here.  As a side note, Eric attended Harvard as an undergrad and was one of the very first people with a Facebook account as the site's inventors lived in his dorm!

Termination of parental rights: How does the court decide that a parent is no longer a parent?

The strength of the parent-child bond cannot be understated.  However, sometimes mental illness, criminal conduct, abuse, neglect or some other horrible factor intervenes to severely weaken, or break that bond altogether.  Then, to protect the child, the state sometimes severs that bond completely.
Sometimes, the Office of Children, Youth and Families, or the equivalent in a particular county in Pennsylvania (in Philadelphia it is called DHS), initiates an action to terminate parental rights to a child. Obviously, this action is not taken lightly and usually follows long-term attempts to reunite the parent with the children.

In a recent Pennsylvania case, the court terminated the parental rights of a mother of children born in August of 2006. The case lays out the tortured history of the mother, as well as the statutes regarding termination of parental rights.

In this matter, the Appellate Court affirmed the trial court’s actions. If you are interested in this issue, if only for a review of what courts consider in terminating parental rights, you can read the entire Opinion here.  Contrast those facts with these, where the trial court refused to clear the way for the parental rights to be terminated, giving the parents one more change.  However, the appellate court reversed after an appeal.
 
New Jersey faces similar parental rights issues.  Recently, the new Supreme Court of New Jersey opined that if a child is taken from a parent, and placed in a kinship legal guardian situation (placed with a relative), the parent must prove by clear and convincing evidence that whatever incapacity or obstacle that existed has been overcome and a return to the parent is in the child's best interests.  This standard -- clear and convincing -- is a relatively high burden of proof for the parent.
 

Thursday, February 25, 2010

Wondering if someone has a criminal record?

In Pennsylvania, you can check criminal dockets on-line.  You can enter an individual's name and determine if the person is a defendant in a Pennsylvania Court of Common Pleas or Municipal Court case.  It is helpful to also have the individual's date of birth to sort out people with similar names.  Of course, recent entries may not be available.  Additionally, some on-line records may not be accurate.  However, if you are wondering about someone's criminal history, at least in Pennsylvania, this is a good place to start.

Wednesday, February 24, 2010

You are divorced! Welcome to the single life! Now what?

A time for celebration?






So you finally received your final Divorce Decree. The date that the court signed the divorce decree is the official date your marriage ended. You should keep this document in a safe place as you may need it to prove that you are divorced in the future. I also recommend keeping a scanned copy on your computer.

Certified copies
In the future, if you need additional or replacement certified copies, you can apply through the court for a nominal fee. If you marry again, you will most likely need a certified copy of the Divorce Decree in order to obtain a marriage certificate. However, sometimes courts misplace or destroy records so it is in your best interest to keep a copy in your personal files.

Beneficiary designations

If you have not already done so by the time your marriage ended, I recommend that you review all of your bank accounts, retirement accounts, investment accounts, annuities, life insurance policies and other documents with beneficiary designations to be sure that your spouse has been removed as a beneficiary. Also, you should inform your employer, insurance companies, taxing authorities, governmental agencies, the Social Security Administration and any other interested parties of the finalization of your divorce.


Credit

You may also want to order a copy of your credit report to make sure that none of your spouse’s debts or responsibilities appear on your report and your credit accounts are properly divided. In addition, if you do not have a Will, or have a Will that was prepared before or during your marriage, you should review your estate plan, including powers of attorney, and arrange for a new Will to be drafted, reflecting your current situation.


Prenuptial Agreements


Is remarriage in the future? Consult with an attorney regarding a Prenuptial Agreement. Prenuptial Agreements are becoming more and more common, especially in subsequent marriages or when either party has children, business or significant assets, debts or earning power.

Taxes

For income tax purposes, your filing status is determined by your marital status on December 31. It is usually wise to check with your spouse regarding who will be claiming certain deductions for the part of the year that you were married (common examples: mortgage interest, dependents, charitable contributions or real estate taxes). If there are any questionable issues, it is best to consider getting your former spouse’s cooperation on these matters to avoid any IRS problems. Because tax issues can become complex, consult with a qualified accountant. Keep records of all payments to and from your former spouse in case there is a dispute later or you need to prove a payment for tax purposes.

Files

Attorneys generally only keep divorce files for a limited time. Accordingly, you should keep your file in a safe place and not depend on your attorney to store it indefinitely.



Divorce is not easy. However, the end of a marriage marks a new chapter in life, hopefully filled with love and success. If your marriage has ended and your divorce has been finalized, celebrate your new beginning. Just remember to keep your documents in a secure place!

Heard of Churchill Downs? How about "the Honeymoon is Over Downs?"

A client forwarded me this very funny video which takes a sarcastic and funny look at marital non-bliss.

****Warning****

Includes salty language -- a few four letter words - but very amusing.


When billionaires divorce

Same fights -- just more to fight over.  Read about the latest on the divorce between the Chariman of the LA Dodgers and his wife here.  The wife is asking for almost one million dollars a month in spousal support.

Tuesday, February 23, 2010

Need to look up property records in Philadelphia County?

You can access property records on-line in Philadelphia for a fee if you would prefer not to visit the Recorder of Deeds in person.  You may need to reference deeds and other documents related to real property in a divorce or other type of litigation situation in order to confirm ownership interests. 

Happiness?

Involved in a family law matter - divorce, child support, child custody, etc.?  Happiness is probably not your first thought.  In fact, getting through the day is probably an accomplishment.  Family law matters can be absolutely brutal -- both financially and emotionally.

Sometimes, however, it is worth it to take a step back and think about your own well-being.  This article outlines five (5) things that will supposedly make you happy.  Since I know that, realistically speaking, happiness might be elusive, at least in the short term, for people involved in family law litigation, I think that even if these tips help you to go from really unhappy to just kind of unhappy - you are ahead of the game!

Monday, February 22, 2010

The college tuition conundrum

Pennsylvania and New Jersey differ on whether a court can compel a parent to pay for college - and when child support ends.

In Pennsylvania -- a child is considered emancipated once her or she turns eighteen (18) or graduates from high school - whichever date is later.  Accordingly, if your child turns eighteen (18) in October, and does not graduate until June of the following year, the child support will continue until that time.  As with any rule, there are exceptions: for example,  if the parties agreed otherwise or if a child is unable to be emancipated (ie disabled to the  point where he or she cannot care for themselves).  In Pennsylvania, absent an enforceable contract between the parents, a court cannot compel a parent to pay college tuition, or any child support once the child is emancipated.

Courts can, and do, compel child support and payment of college tuition in New Jersey.  Children do not become automatically emancipated at a certain age --- the test is subjective.  Separated or divorced parents can be compelled to pay support through the college years, as well as share in tuition and other education expenses.  There are even some cases where a court has compelled compensation to post - graduate study.

Parents in New Jersey can come to an agreement as to how college tuition will be paid.  Absent agreement, a court generally looks at a variety of factors: each parent's ability to pay, child's aptidue, financial aid available, etc.  Parties can agree, however, to be more generous than the law would ordinarily allow.  Sometimes, in New Jersey, one parent will agree to pay more than his or her share, for one reason or another.


Recently, the Appellate Division of the Superior Court of New Jersey affirmed a trial court decision which compelled a father to pay a share of his child's college tuition.  At issue was the following clause in the parties' marital settlement agreement: "The [p]arties . . . agree that if the children are capable and have the desire to attend college they shall each contribute to the best of their ability."  As the parties were divorced in 1996 -- this clause was written quite some time ago.  Additionally, since New Jersey law would require the parents to contribute, this clause probably offered little in the way of guidance.  Moreover, the clause contains ambiguous language.  After all -- who defines "best of their ability?"

Although the father in this case offered many reasons as why he could not contribute, including that he felt he could not afford it -- the court disagreed.  This opinion was not published, which means it does not have precedential value.  However, it describes the factors a court reviews in making these college tuition decisions.  You can read the opinion here. (Orero vs. Orero, Docket No. A-2230-08T3).  Decided February 19, 2010.

Saturday, February 20, 2010

Divorce gifts?

Need to purchase a gift for someone getting a dviorce?  Try a Divorce Humor Basket, which includes a variety of humorous gifts.

Friday, February 19, 2010

One couple at war over the religious upbringing of their child

Religious disputes can ignite a custody battle into an outright war.  Read about a couple in Illinois who allegedly agreed to raise their child Jewish but now that they are no longer together, dad is taking the little girl to Catholic Mass, against mom's wishes.

Thursday, February 18, 2010

Business owners beware: classifying workers as independent contractors versus as employees

Starting a business? Your list of tasks can be miles long.  Come up with an idea.  Check.  Rent space.  Check.  Incorporate your business.  Check.  Classify your workers as independent contractors or employees.  Hmmmmm - How do I do that?

Some business owners thing they save money, and beat the system by simply classifying all workers as independent contractors.  You avoid the (quite hefty) payroll tax, payroll constitutes writing simple checks, and you are not hassled with unemployment or workman's compensation insurance.  However, wrongly classifying your workers can expose you to civil penalties and a very large back tax bill if the IRS (or the state or local taxing authority) steps in and decides that you have not been operating properly.

Consult with a qualified accountant on this substantial issue.  Additionally, the IRS publishes material to educate you.  The IRS's Publication 15: (Circular E), Employer's Tax Guide is an especially good reference.

Just today, The New York Times reported on its front page that the US government will be cracking down on businesses who us the "independent contractor" status as a tax dodge.  Review your business arrangement now and, if need be, correct your practices before you are on the receiving end of a very nasty audit.

Advice from a movie character

“Life moves pretty fast. If you don’t stop to look around once in a while you could miss it.”


― Matthew Broderick as Ferris Bueller, "Ferris Bueller’s Day Off"

Wednesday, February 17, 2010

Does “I Love You” mean “I Will Go Into Debt With You”?


Ask anyone about what causes marriages to break up and you will usually hear, as at least one of the reasons, that the parties experienced financial problems. Opinions differ as to whether the relationship was destined to fail and the money issues just were simply the last straw or whether fighting over money led to a breakdown of the relationship. As money issues can cause stress and anxiety, handling these matters in a forthright manner can remove at least one potential burden on a relationship.

Planning for a marriage often involves picking out the dress and the tuxedo, inviting your family and friends to a huge reception, deciding on flowers and a photographer, and booking a honeymoon. Somewhere in those preparations, however, couples should have a frank, and sometimes excruciatingly comprehensive, discussion about finances. After all, if you are going to sleep with this person for the rest of your life, and share a home, bathroom and children, you should also be able to talk about personal money issues. Really now, if you wash someone’s underwear you can look at their credit report!


First, exchange information. It is surprising to me, even after so many years of handling divorce cases, the number of clients who come into my office and tell me they have never seen their spouse’s pay check, are not permitted to look at the tax returns, or are put on an allowance and simply do not share in any financial decisions. While that may work for some couples, it generally would not be the ideal way to manage a relationship. How can couples make joint decisions together if neither has the complete information picture? It would be like business partners deciding to expand their business, but only one person understanding the income and cash flow. Accordingly, first and foremost, become familiar with your partner’s income, assets and debts.

Once you have exchanged what can be some painfully personal information about money, the next step is to determine whether or not you have similar financial styles. Are you both the type that strictly budget and plan every purchase down to the penny? Is one of you a spend-today-worry-about-it-tomorrow-care-free spirit? Will one of you never be able to sleep at night unless there is at least three month’s of savings in the bank, your house is paid off, and your retirement account is plump? Just because you have different financial personalities, does not mean that you cannot find a happy medium. However, it is important to at least understand the other party’s point of view. Then, you can make plans as to how you will manage your joint financial lifestyle.



Most married couples open joint accounts and also joint debts (such as credit cards and mortgages). A joint bank account has many conveniences: all of the money is pooled into one place, each party has equal access to funds, both parties feel as if they are truly joint owners - no matter who earns the income, etc. However, a joint bank account provides the other party access to view each and every transaction. Sometimes, people are not that comfortable with this high level of scrutiny, especially if you have been accustomed to managing your own funds for quite some time. Do you really want to explain every time you withdraw $20 at a Wawa?

A joint bank account also means that either person could withdraw or otherwise pledge all of the money in that account. Similarly, if one person is sued and the bank account is attached, often, the other party will have difficulty claiming an exemption from that type of debt. You could be on the hook for the other party’s lawsuit. Sometimes, in order to continue to assert at least some level of independence, couples establish a joint account for certain expenses, like mortgage, house expenses, utilities and items relating to the children. If there is enough disposable income left over, each party can establish their own separate account and at least feel some type of autonomy over a portion of their funds.

Like a joint account, joint credit can be extremely convenient. Sometimes, one party does not have access to credit or a sufficient credit rating to obtain credit in their own name. Additionally, when parties buy a house together, it is often simply logical to deed the house in both parties’ names and, therefore, have both parties sign for the mortgage. What people must understand is joint debt is just that to the creditor - joint. If your marriage goes south, one party, heaven forbid, dies, or one party overspends, the creditor really cannot be bothered with the details as to who spent what.

The loan company simply wants to be paid back. If you sign for credit in each other’s names, be prepared to be responsible for the entire amount. This is the meaning and the pitfall of joint and several liability. The creditor can obtain the entire balance from one person, or obtain the entire balance from the other person, or obtain a portion from each party. If one person disappears, goes bankrupt, or, again heaven forbid, dies, the other party will be solely liable for the debt. Be very careful about joint credit. This goes back to establishing your joint financial lifestyle. If you agree with each other on how to manage finances, handling joint credit should be part of the equation.

A few weeks ago, I was at a seminar in a large hotel. Over six hundred lawyers attended to learn about the latest cases, statutes, rules and trends. In a ballroom across the hall, a bride and groom, along with a huge wedding party celebrated their nuptials. I hope for two things: (1) that they did not realize the hotel was literally swarming with divorce lawyers and (2) that they discussed finances before tying the knot.

Tuesday, February 16, 2010

Your biggest bite of the apple is at the trial court level



Family law matters that result in trials are generally subject to the same rules and procedural guidelines governing other types of legal matters. A basic tenant of our litigation system is that you must present all of your arguments and issues at the trial level to be heard before the fact finding judge, who makes credibility determinations after listening to all the evidence and renders a decision. If you are not happy with that decision, you usually have the right to appeal (unless it is, for some reason, what is considered an interlocutory - also known as “not final” - Order). Unfortunately, some litigants, especially in family law matters, do not understand the gravity of the trial level and either attempt to represent themselves without knowing the significant potential consequences or, simply do not resolve their issues at the appropriate time, even when they do have a lawyer.

Recently, the Appellate Division of the Superior Court of New Jersey addressed a matter wherein a defendant/husband appealed from an Order wherein the trial court awarded the plaintiff/wife counsel fees in relation to a domestic violence order that had been entered by the court. Notably, defendant failed to appeal the actual domestic violence order.

The Appellate Court reviewed the record and noted that trial judges are given broad discretion in family law matters. Additionally, the court found that the trial judge’s order was well reasoned and based on the facts. The Appellate Court refused to reverse.

In addition to seeking a denial of the counsel fee order, defendant had also asked for changes to his custody arrangement as well as a dissolution of the restraining order. The court found that custody issues are properly brought up within the context of actual custody proceedings and not as part of a domestic violence matter. Additionally, the request to dissolve the restraining order was inappropriate procedurally as defendant should have appealed the original restraining order.

The Appellate Court outlined defendant’s seven issues he raised in an attempt to have the trial court overturned and the Appellate Court did not find merit to any.

The lesson to be learned here, aside from not engaging in domestic violence, is that to navigate the court system, one needs expertise as well as a sense of organization and adherence to deadlines. In this matter, had defendant properly appealed the domestic violence restraining order, or asked for custody relief within the context of the custody litigation, rather than the restraining order litigation, he may have succeeded, or at least bettered his situation. If you would like to read the full Opinion from the New Jersey Superior Court, you can click here. Please note that this Opinion has not been approved for publication, which means that it may not be used for precedential value. However, it does provide guidance as to the Court’s reasoning.

Monday, February 15, 2010

Tax does not have to be a scary word

For many people, just the mentioning of words such as 1040, W2, Tax form and April 15 creates anxiety and fear.  Much of that comes from the unknown -- our tax code and the multiple forms, publications and communications from the IRS seem absolutely daunting.



However, as with most things, knowledge is power.  Becoming familiar with taxes, the associated forms, and some of the rules, helps you to understand your own financial situation, and ultimately, have more information with which to make your own economic decisions.  For many people, their tax forms are relatively simple -- involving just a categorization of earnings and deductions.  As people gain more assets, their tax forms often become a bit more complicated, as the extra income (or loss) must be reported. Those with businesses have another layer of information they must report.

This weekend, the New York Times provided a step by step guide to understanding your own 1040 form.  You can access the guide here.  Happy learning!

Thursday, February 11, 2010

Your Facebook page can be used against you . . .

Putting parts of yourself out there for all to see on the internet can have disastrous consequences in a family law matter. Consider these:

You take the position in court that you are suffering financially yet you, your friends or your present girlfriend/boyfriend post pictures and details of fancy dinners, trips and purchases on a social networking site.

You tell the other party in your case one thing and your social networking site proves something else.

You state in support court that you are unemployed or otherwise impoverished but you list yourself on your dating website as a successful executive earnign six figures.


At best, you can simply have your credibility challenged. However, if the discrepancies are signficant enough, you could find yourself on the losing end in court. The New York times address this subject in this article.

Best advice? Shutdown all of your social networking sites while involved in a family law matter. If you refuse to do that, at least use a serious filter as to what you post.

Wednesday, February 10, 2010

Stay warm today!

“There’s one good thing about snow, it makes your lawn look as nice as your neighbor’s.”

― Clyde Moore

Tuesday, February 09, 2010

Feeling Anti-Valentine?


There are some pretty funny cards out there ---
How about -- Who gives a %^&*#%?
or little candy hearts with nasty little messages . . . .
yikes - you can tell someone how you really feel . . .
Get your stuff back . . .
Take out your frustration . . . .
Or join an anti-valentine movement complete with an arrow right through cupid.

Monday, February 08, 2010

Multiple wives, multiple children, multiple jurisdictions

The Superior Court of Pennsylvania, this Commonwealth's appellate court, recently agreed with the trial court in declining jurisdiction of a custody matter in favor of the State of Michigan. The case contains a comprehensive review of the factors (is there domestic violence, where is child, what are the financial circumstances of the parties, etc.) in determining an inconvenient forum. Read the full opinion here.

Note that Mother and Father were never legallymarried. Father has eleven other children by two other women. The Mother in this case is his third Muslim wife (not recognized as a legal marriage). When the child was only six months old, Mother suffered abuse at the hands of Father, resulting in the need for seventeen stitches. Father was later convicted criminally.

The opinion includes a recitation on some of the cultural and religious differences that played into the history of this family (corporal punishment allegedly acceptable in Father's home country, a mother's role until the child reaches age seven as well as the multiple marriages).

Friday, February 05, 2010

A penny saved sometimes is not a savings at all


I have written previously on the importance of obtaining competent legal advice when going through a divorce proceeding. Sometimes, in trying to avoid the expense of legal fees, parties mediate or resolve their own matters. However, because a divorce agreement can have long standing consequences, if the terms of that agreement are not reviewed by an attorney, familiar with the case law, and statutes, as well as the procedure in the particular county, the consequences can be extreme.

In the fall of 2009, the Superior Court of Pennsylvania (our Appellate court) addressed a case in which a former Husband and Wife disputed their respective responsibilities under their marital settlement agreement. As is sometimes the case in divorces, these problems bubbled to the surface in 2007, a full 13 years after their final divorce decree. (Read the complete opinion by clicking here.)

Husband, apparently in an effort to conserve resources, and not understanding the task he was undertaking, drafted the marital settlement agreement. Apparently, he was a practicing attorney but had no experience in divorce law.

As a term of the agreement, he drafted that he would be responsible for paying the mortgage and taxes on the marital residence until the house was sold, even though Wife would continue to live there. Apparently, as a part of this agreement, Husband expected to pay no child support. Perhaps, as part of the overall global settlement, he thought that by paying the mortgage, that would obviate his need to pay child support.

This type of an arrangement sometimes occurs in cases where parties attempt to preserve the residence, usually in an effort to avoid disrupting the children. Unfortunately, these good intentions sometimes result in ambiguous or unwieldy payment arrangements. Additionally, staying financially tied to a former spouse by continuing to own the same house and being responsible for the some mortgage payments can result in disaster. For example, what if the spouse living in the house does not properly care for it so as to affect the value? What if one spouse is sued and a lien is placed against the property? What if someone moves a new spouse or significant other into the property? All of these “what if’s” must be considered before finalizing this type of complex arrangement.

In this recent case, Wife returned to court a few years later and requested child support. When Wife began receiving child support, she made mortgage payments. Husband stopped making any payments related to the marital residence whatsoever. Significantly, no one paid the real estate taxes. The township instituted tax liens.


Wife went back to court, asking that Husband reimburse her for all mortgage payments plus pay all outstanding real estate taxes plus pay her attorneys fees. Husband objected, believing that the child support be paid relieved him of his contractual obligation under the divorce settlement. The court sided with Wife.

The lesson here? Divorce settlements are generally contractual and enforceable while child support arrangements are always modifiable.

Here, Husband undoubtedly thought that by agreeing to pay the mortgage and taxes, he was protecting himself from child support. However, the right to child support cannot be waived. Had Husband understood this concept, he might have been able to protect himself back when the divorce was finalized. Husband, however, thought he knew better. That he was an attorney only compounded the problem - he possessed just enough legal knowledge to get himself into a huge financial mess.

Wednesday, February 03, 2010

The Tax Man meets the Divorce Judge: A Horror Story



Tax implications can significantly alter a divorce settlement - sometimes with a severe and inequitable impact. A resolution that seems great at first blush could take a dive into catastrophic waters once you figure the bite of tax consequences.



You take this, I’ll take that (Division of Property)

Generally, transferring property or money from one entity or person to another can trigger a tax. Examples are: (1) income tax (employer/employee transaction); (2) gift tax (donor/recipient transaction); and (3) transfer tax (buyer/ seller transaction). However, a transfer of property as part of a divorce settlement is generally not subject to income tax or transfer tax. The transaction, however, could still have tax consequences. Caveat Emptor!


The basis (defined as the cost for determining taxable gain) of the property transfers with the property and may create a tax liability for the spouse who receives the property if the property is later sold. By way of example, if a couple owns $50,000 worth of stock and a $50,000 savings account, it would most likely not be an equal split to have each spouse take one of these assets. The $50,000 bank account would have virtually no income tax consequences connected with it. However, if the stock was originally purchased for $10,000, then it would have a tax basis (cost) of $10,000. The person who gets the stock in the settlement could pay tax on $40,000 of gain if the funds are later sold for $50,000. If the capital gains rate at the time is 15% - that is a $6,000 tax bite.

When dividing property at the time of divorce, any potential tax liability should be factored into the valuation of the assets. In the above scenario, the person who received the stock would actually receive less than the person receiving the bank account, considering the tax consequences, even though they are both receiving a $50,000 asset. To resolve this dilemma, parties could divide both assets equally, thus dividing the tax consequences. Parties could also attempt to compensate for the tax consequences, but this could be risky and uncertain as tax rates change.

I have to pay him/her how much? (Alimony)

Alimony is generally deductible by the person paying it and taxable to the person receiving it. This means that the after tax cost of alimony can be much less than the actual payment. Parties should be cautioned that any portion of a payment that is specified as support for the couple’s minor children is not considered alimony because it is really just disguised child support.

The IRS defines alimony very specifically. To be alimony for tax purposes, it must be a payment under a divorce or separation written document and the spouses must file separate tax returns. (Yes - must be written!) Additionally, the payment must be cash, check or money order. (Payment through a court system, such as PA SCDU or NJ Probation, also qualifies. However, bartering good and services or payment of someone’s bills does not). The spouses must live separately and the document must specify that the payments terminate upon the recipient’s death.

In order to ensure that the payments deducted as alimony are not disguised property settlements (which are nondeductible), the tax regulations provide certain limitations on the term of payment and the fluctuation in the amount of annual payments. If the IRS find something fishy, payments could be recharacterized, thus resulting in a tax mess - back due taxes plus penalties and interest.

Both spouses’ tax situations should be considered in determining whether the amounts paid qualify as alimony or not. The benefits would depend on the respective spouses’ tax brackets. For example, shifting income to a spouse with a lower tax bracket means less money for Uncle Sam and more for the family unit (albeit a divorced family unit).

My child support is how much? (Child Support)

Unlike alimony, payments made for child support are not deductible by the parent paying them, and they are not income to the parent receiving them.

As mentioned previously, child support may not be disguised as alimony. Payments not designated as child support will generally be reclassified as child support if they are to be reduced by a certain event in the child’s life (i.e., when the child reaches a certain age, graduates, leaves home, etc.). Careful drafting can avoid this reclassification.

But I want to claim my kids! (Dependency Exemption)

The law states that the custodial parent is generally entitled to the dependency exemption on their income tax return for children unless the custodial parent waives the right to the exemption in writing. Judges in family law matters can also allocate the exemption as they see fit. Sometimes, the dependency exemption is used as a bargaining chip.

The parent who maintains a home for a dependent child for more than half of the year may still qualify for the earned income credit, the child care credit, and the head of household rate even if that parent has waived the dependency exemption to the non-custodial parent. When parents share custody, the tie breaker for the dependency exemption, absent agreement, is usually based on each parent’s income.

The parent who pays the child’s medical expenses may claim them along with his or her own, regardless of which parent gets the dependency exemption. However, as there is a threshold for deducting medical expenses, not everyone may be eligible for this tax break.

We’re moving on up! (Sale of Residence)

The tax rules governing the sale of your home dictate that most sales will be tax-free unless your house has increased significantly in value from the date you purchased it. The law exempts from taxation profits on the sale of your home of up to $250,000 for singles and $500,000 for couples. The profit is based on the gain, that is, the sale price minus the original purchase price, adjusted for any additions to basis along the way.

Please note that to qualify for the exemption, you must have owned the home and occupied it as your principal residence for at least two of the five years prior to the sale.

I paid my lawyer an arm and a leg - can I at least deduct it? (Deductible Fees)
The cost of getting a divorce is not deductible. However, legal fees that relate specifically to a property settlement may, in some circumstances, be added to the basis of the property. Fees paid for obtaining alimony and for tax advice in connection with the divorce are deductible as miscellaneous itemized deductions. Of course, as with most other itemized deductions, your deduction may depend on your AGI and is subject to a floor and other specific rules.

Saving for the golden years. (Retirement Accounts)

Dividing up retirement benefits also presents tax challenges in a divorce. Normally, early withdrawals from a retirement account trigger both penalties and taxes. However, you can divide the benefits of a qualified retirement plan without tax consequences if you obtain a Qualified Domestic Relations Order (QDRO). Even then, however, the rules are complex and the consequences of an error can be severe. Other retirement benefits, such as IRAs, can usually be transferred without a QDRO, but the transfer must still be carefully structured to avoid unplanned tax results. Additionally, the receiving spouse will usually receive the assets as a retirement benefit and will generally not be able to liquidate it prior to retirement age without penalties and taxes.

Who gets what when I die? (Life Insurance, Wills and Estate Planning)

Any change in family status should be followed immediately by a review of life insurance, wills, estate plans and anything with a named beneficiary. In the case of significant assets, children, subsequent marriages and/or a family business, this review becomes imperative. At the time of a divorce, all health, life, disability, auto, home, and other insurance policies should be read and re-evaluated. Change amounts of coverage and beneficiaries if warranted.

Obtain competent advice. (Accountant)

As with all rules, tax laws and regulations are subject to exceptions and interpretation. When negotiating your divorce, consult with a qualified accountant.
For comprehensive materials published by the Department of Treasury, Internal Revenue Service, visit www.irs.gov