Tax Consequences in Divorce

Tax Consequences in Divorce

According to expert tax accountants Accountants Australia, People often overlook the important tax implications of getting divorced.  They’re usually focused on child custody issues or division of property and fail to understand or bring up important issues that will determine the ultimate determination of how taxes will be attributed and assigned as a result of their divorce.

Important areas to think about are: division of assets, support, income tax filing, division of retirement benefits and, if applicable, innocent spouse relief.

As a foundational issues, the Supremacy clause of the U.S. constitution means that Federal Tax law will govern even in state court where divorces are heard.  That means a state court judge may not validate any agreement that contravenes federal tax law.

Let’s look at how these rules affect different parts of a divorce.

  • Division of Marital Property
  • No gain or loss.  Generally, no gain or loss is to be recognized when assets are transferred because of a divorce.  There are some rules to follow when determining whether the “transfer” was a part of the divorce.  They are:
    • The transfer is required under the divorce decree or divorce or separation agreement.
    • The transfer occurs within six months of the marriage ending
    • There is a presumption, although subject to rebuttal that a transfer was related to the divorce if it occur within six years but the party can show there were legal or business reasons for delaying the transfer.
    • Exceptions:  There are some exceptions that apply to this rule, such as where the spouse is a resident alien, some transfers related to trusts and some stock redemptions.

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Parental Alienation and Abuse Allegations in Divorce

Parental Alienation and Abuse Allegations in Divorce

During and after a divorce becoming the target of parental alienation can create huge fear and depression in the case of the parent being alienated.  There is potential for complete loss of the relationship with the child, or, on the other hand, what if the allegations by the child, typically abuse, are true?

Let’s discuss what parental alienation is and what it isn’t by first trying to define what it is.  There is wide-spread debate about whether the problem even exists.  For example, the Diagnostic and Statistical Manual of Mental Disorders used by the American Psychological Association doesn’t recognize Parental Alienation as a syndrome.  Some argue that while the DSM doesn’t specifically call for the syndrome, the elements of the problem are clearly defined in the manual.

The DSM does use a category of Parent-Child Relational Problem, and Child Affected by Parental Relationship Distress to be used when “the focus of clinical attention is the negative effects of parental relationship discord (e.g. high levels of conflict, distress, or disparagement) on a child in the family, including effects on the child’s mental or other medical disorders (DSM P. 716).

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Effective Prenuptial Agreements

Effective Prenuptial Agreements

In a general sense the purpose of any prenuptial agreements  in family law is to agree in advance on several key items in the relationship:  property division, debt, support for each spouse, and administrative items like attorney’s fees if the marriage comes to an end.

These types of agreements also reduce the stress and conflict a divorce might impose on each spouse, children and other family members.

Many people rely on a prenuptial agreement by itself, but it is important to remember that other estate planning documents should be referenced and included with the prenuptial agreement, such as: will, trusts, advance directives, etc.

Some information is critical to gather in preparing a prenuptial agreement.  For example, you should examine: Tax returns, debts, vehicle titles and registrations, Life insurance contracts, business ownership, investments and retirement accounts, estate planning documents, and recent bank statements.

The debts of each spouse should be carefully considered.  In some cases, if debt is not properly addressed in prenup a creditor might have the ability to seek payment from either spouse.  A prenup is a good opportunity to specifically limit your liability for your spouse’s debts if necessary.

Prenups can also deal with financial or other obligations during the marriage, as opposed to just addressing issues that might come up if the marriage ends.  Some issues that could be governed during the marriage might be: increasing benefits according to the length of the marriage or deciding what financial responsibilities each party will have,

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