Personal Finance

• Automotive

• Casualty Losses

• Charity

• Credit Issues

• Dealing With the IRS

• Death of a Taxpayer

• Divorce

• Dollars & Sense

• Education

• Eldercare

• General Tax

• Investments

• Medical Care

• Your Home & Taxes

• Relocation

• Rental Property

• Retirement Planning

• Work-Related Expenses

• Your Business

• Health Care Provisions

Taxpayers must resolve many tax-related matters when they separate or divorce. Failing to consider these tax issues can have a long-term financial impact. Taxpayers contemplating separation or divorce are encouraged to consult with this office before finalizing any agreements. The following articles discuss some of the frequently encountered issues.

Alimony is the term used for payments to a separated or ex-spouse as part of a divorce or separation agreement. The payments are taxable to the recipient and deductible by the payer but are not treated as alimony if the spouses file a joint return with each other. Since 1985, two ways of defining alimony have been in effect, one for payments under decrees and agreements dated after 1984 and another for payments under decrees and agreements made before 1985. This article deals with only decree...

Generally, a taxpayer’s home mortgage interest is limited to the interest on acquisition debt and $100,000 of equity debt. In a divorce action sometimes one spouse will buy out the other. Often in these situations, the buying spouse will incur additional debt to buy out the other spouse. The IRS in notice 88-74 has stated that in this situation, the additional debt, secured by the home, to buy out other spouse will be treated as acquisition debt.

In community property states, community income must be divided between spouses as required by state law. In general, community income is that earned while spouses live together. Married taxpayers domiciled in the following states are subject to community property rules: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.Local law determines the definition of when a spouse begins receiving separate income. California law, for example, says separate incom...

A Qualified Domestic Relations Order (QDRO) is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to a spouse, former spouse, child or other dependent.DISTRIBUTIONS: When it involves the allocation of the benefits of a qualified pension plan, the order has to contain certain specific information like the amount of the participant's benefits to be paid to each alternate payee. Child or dependent - If a child or dependent receives a di...

Who is deemed to have paid qualified tuition? IRS regulations provide that solely for education credit purposes, if a third party (someone other than the taxpayer, the taxpayer's spouse, or a claimed dependent) makes a payment directly to an eligible educational institution for a student's qualified tuition and related expenses, the student would be treated as receiving the payment from the third party, and, in turn, paying the qualified tuition and related expenses. In turn, qualified tuitio...

Filing status for a tax year is determined on the last day of the tax year. If the taxpayers are married on the last day of the tax year (including those taxpayers in the process of divorce), then they have the following filing alternatives:  Married Filing Separately - This status is used when married taxpayers do not wish to file jointly. There are a number of punitive tax issues associated with married taxpayers filing separately. These laws were written to prevent married taxpa...

When married taxpayers file jointly, they become jointly AND INDIVIDUALLY responsible (often referred to as "jointly and severally liable") for the tax and interest or penalty due on their returns. This is true even if they later divorce.Joint filers remain "jointly and severally liable" even if a divorce decree states that a former spouse is responsible for any amounts due on previously filed joint returns. One spouse may be held responsible for all the tax due, even if the other spouse earn...

Medical expenses paid for dependents may be deducted. To claim these expenses, the person must have been a dependent either at the time the medical services were provided or at the time the expenses were paid. If either parent can claim a child as a dependent under the rules for divorced or separated parents, each parent can include the medical expenses he or she pays for the child. This is true even if the other parent claims the exemption for the child.

Often, when a couple separates and divorces, one spouse continues to live in the family home. Frequently, the departing spouse will simply quitclaim the property to the spouse retaining the home. When filed, the quitclaim deed takes the departing spouse's name off the title. However, it does not remove that spouse's name from the mortgage.  So if you quitclaim a property to your spouse and he/she is late with payments, it will hurt your credit rating. To make matters worse, there is no ...

No gain or loss is recognized when property is transferred between spouses during marriage. This rule applies also to transfers between former spouses if "incident to a divorce." A transfer is considered incident to divorce if it occurs within one year after a marriage ends, or is related to the ending of a marriage (i.e., occurs within 6 years after a marriage ends and the transfer is made under a divorce or separation agreement). A transfer that occurs later than 6 years after a marriage en...

Tax rules include some special provisions pertaining to the transfer or disposition of the taxpayers' home incident to divorce and the application of ownership and use rules for purposes of qualifying the exclusion of gain.  Transfers between spouses or transfers related to divorce - For an individual holding property transferred between spouses or transfers incident to divorce, the period the individual owns the property includes the period the transferor owned the property. However...

The following rules apply when determining which parent claims a child as a dependent where both parents together provide more than 50% of support, the child is in the custody of the parent(s) over half of the year, and the parents are divorced or legally separated under a written agreement, or lived apart at least the last six months of the year.BASIC RULE: The basic rule is that the custodial parent—defined as the parent with whom the child resides for the greater number of nights dur...