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Divorce and joint accounts

In a divorce, any joint bank accounts held by the couple will be liquidated and divided between the two parties.

Ellen Anna Wright | Mar 9, 2016

How to Reconcile Your Divorce With Your Tax Situation

Determine your filing status A person's status at the end of the year determines how they will file their tax return, however, absent an order of the court, there is no obligation to file jointly with a soon to be ex-spouse if you find yourself caught up the middle of a divorce. Married filing separately is almost always an option, but may result in a higher tax liability. If your ex-spouse has concealed income in previous years, it may make sense to file separately if the divorce is contentious and is not likely to settle. It is also important to be mindful that if there is a liability or refund, there may be duties or obligations associated with how it is divided at the end of the divorce process. If a divorce is final by December 31 of the tax year, a tax payer will file separately from the former spouse for that tax year. Likewise, the custodial parent of the children may qualify for the favorable head of household status. If not, then single will be the default filing status, even if married for part of the tax year. Consider the Tax Implications of Support Child support is not deductible to the person who pays it, but alimony is. Likewise, child support isn't reported as income, but the recipient of alimony must claim it his or her tax return. The court however has the power, and parties can agree to designate support as "unallocated" or "family support" so that the tax treatment can be modified to accommodate the need(s) of the parties. This support structure allows spouses to take support payments that are typically not tax deductible and allows the payer to deduct the payments from his or her income taxes. While alimony has always been treated this way, child support is usually not tax deductible. Unallocated support allows a taxpayer to merge child support and alimony together so that the payment of both becomes a tax deduction to the payer, and taxable income to the recipient. Review Your Divorce Decree to See Who Will Claim the Children as Exemptions A properly drafted divorce agreement will contain provisions regarding the right to take the children as tax exemptions. If the agreement is silent then the right to take the exemption will go to the custodial parent. If the custody arrangement is joint, the exemption will go to the party who has the child the greatest number of days during the tax year. More often than not, a divorcing couple will alternate years or use some other method to equitably share the minor children as tax exemptions, but the terms of the separation agreement will always control. IRS Form 8332 - Don't Overlook It If the non-custodial parent has the right to claim the child(ren) as a tax exemption, the IRS Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents) should be signed by the custodial parent. A copy of this form ought to be filed with the income tax return in order to claim the tax exemptions for children who do not live the non-custodial parent. As a practical matter, this form is frequently neglected at tax time but care should be taken to make sure it is not disregarded. File First if Exemptions are an Issue It is not uncommon for an argument about tax exemptions to surface before tax time even arrives. The custodial parent will always have an edge if they are able to file first since the IRS will make the non-custodial parent prove that he or she was entitled to the take the exemption. Itemize your Statement of Legal Fees Paid During your Divorce Although the IRS prohibits any deduction for the cost of personal advice, counseling and legal action in a divorce, fees paid for tax advice about the consequences of your divorce may be taken as an itemized deduction on Schedule A on the line "other expenses". Likewise, legal fees incurred to obtain alimony support order can be claimed as well. Carefully review the bill from your lawyer to see what, if anything, can be deducted. Consider Changing Your Withholding on Form W-4 or Making Estimated Tax Payments Divorce can affect a tax situation dramatically and have consequences that carry over into future years despite even the best tax advice. If there is going to be a tax liability for the foreseeable future, it may be wise to claim one additional exemption for approximately every $3,600 of deductions, including alimony payments. In the case of an alimony recipient, consider requesting extra tax withholding in order to cover any new tax liability. If withholding won't be enough to cover make up the difference, set up quarterly estimated tax payments to avoid owing taxes and penalties at the end of the coming year.

David B. Karp | Feb 1, 2016

Tips for what you should do after your divorce

Redraft any estate planning documents. If you have a Will or Trust, you will want to make sure that after your divorce, your ex spouse is removed as a beneficiary from any of the estate papers and if they were the designated trustee or personal representative of your estate, that you make a new nomination. Clear title to real estate If there is real estate as part of the divorce, you want to make sure in a timely fashion that you prepare the proper quit claim deeds and transfer returns to file with the register of deeds in every county where real estate is located. Further, in a timely fashion, you need to have the non-owning spouse's name removed from the mortgage or home equity loan by refinancing, or having a time table as spelled out in the divorce decree, when the property must be placed on the market and sold. Securing retirement benefits Contemporaneous with the divorce, you will want to insure that all retirement benefits that were to be divided, whether a 401k plan or pension retirement plan, be promptly divided by qualified domestic relations orders (QDROs), to protect your interest in all said plans. Hire an attorney or someone familiar with drafting QDROs to do that for you. Change of beneficiary designation On all life insurance policies, POD accounts, IRAs, mutual funds, stock plans and any other investments that you were awarded, to immediately have your ex spouse's name removed as beneficiary and to designate a new beneficiary to your plans. Notify health insurance carriers Effective on the date of the divorce, your ex spouse is no longer eligible for continuing health insurance coverage under your plan at work, unless they convert the plan to their own under COBRA law. Promptly notify your employer of the change. Income garnishment orders If there is a support order for either child support or maintenance, and in particular, if you are the recipient, make sure you or if you have a lawyer, promptly draft and file with the court all income assignment orders to insure you promptly receive all the payments that will be due. Papers to keep While you may not need your entire divorce file, there are certain essential papers that you need to keep in safe keeping following the divorce. They include, your divorce decree, what is entitled, "findings of fact, conclusions of law and judgment of divorce.," your marital settlement agreement, both you and your spouse's signed and final financial disclosure statements, a copy of the court transcript from the final court hearing, if you have ordered it out, copies of all retirement plans, both 401ks and pensions, including all qualified domestic relations orders to divide the plans up and finally all real estate papers assigning interests in the properties. Consult with your accountant Call your accountant and let them know you are divorced to change any appropriate withholdings at work and to prepare your year of divorce income tax returns. Close out joint accounts On any investment accounts that are jointly held, such as a bank account, stock plan or other jointly held investments, arrangements should be made to promptly close in conformity with the terms of your divorce decree. Close out joint credit cards and debts Make sure all joint credit cards are closed out and other debts are closed that the other party cannot continue to charge against your credit after the divorce and in conformity with your final divorce decree.

Valerie Ingram Kirkendall | Nov 23, 2015

Disadvantages to adding a child's name to the deed to your family home (or bank account)

Control: Once your child's name is on the deed, his or her consent must be obtained before selling the property. Therefore, if you want to sell the house for whatever reason, you will need to have your child's consent before the house can be sold. If the child is married, it may also be necessary to get the signature of the child's spouse on the deed before selling, otherwise it will be impossible to get title insurance. Possible transfer by your child: Being an immediate co-owner of the property, your child now has the right to sell or mortgage his/her interest in the property, which you cannot prevent. (You may sever the joint tenancy but that won't result in the return of the gift.) Possible involuntary loss to your children's creditors: Property held in joint tenancy form can be attached in favor of its owner's creditors. Even if your child is financially responsible, he or she could be involved in an accident, divorce or could lose a lawsuit, and the prevailing party could attach the child's interest in your home. Unintended disinheritance: If you have multiple children, you may intend that your child shares with his or her siblings. However, your child, particularly if he/she is married and especially if he/she has children of his/her own, will likely want his/her joint tenancy interest to pass to his/her spouse or children. Loss of step-up in basis and possible increase in income tax payable upon sale: You probably paid less for the home than it is worth now. The amount you paid is called your "basis" in the property. If you pass away, your children will get a "step-up" in the basis of your home to the value it has at your death. However, if you give away your interest, the children have the same basis as you have. This can have significant capital gain tax consequences. Consequently, upon any subsequent sale of their interest in the property, they will likely pay more tax than had they received their interest at your death.

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