Info

Divorce and Your Money - #1 Divorce Podcast

Visit us at www.DivorceAndYourMoney.com Divorce and Your Money is your guide to avoiding costly mistakes during divorce. Shawn Leamon, Certified Divorce Financial Analyst and MBA, wants to help you learn the fundamentals of how to get a divorce. Whether you are looking for an uncontested divorce, a do it yourself divorce, or an online divorce, resources are available to offer guidance. Through his divorce podcast and divorce blog, Shawn offers his professional opinion on the best ways to handle the end of your marriage. He covers topics including how to file for divorce, divorcing a narcissist, and finding the best divorce attorney. Even tricky subjects such as a “what is a QDRO?” and “is alimony taxable?” are tackled through these venues. If you need to know what the first steps are or what you should do to head to trial during litigation, you can find resources to give you a step-by-step guide to what comes next. Think of his advice as an alternative to divorce support groups where you can find exactly what you need when you need it. He offers one-on-one divorce coaching to give you a solid grasp on the decisions that are bound to affect your financial future. Before you have a divorce decree in hand, you will likely go through some type of divorce mediation. For any spouse saying, “I want a divorce,” you need to make sure that you are getting the financial future you are entitled to. Do not allow yourself to be blinded by the emotional, legal, and financial burden that divorce can become. Instead, take control of your situation with sage wisdom to help all individuals make better financial decisions for their independent future. If you find yourself asking “where are the best divorce lawyers near me?”, Shawn can help you to recognize the best of the best. Whether you need a divorce in Texas, a divorce in Florida, or a divorce in New York, you will have all the knowledge you need to find the best team of professionals to assist you. You can start from a place of being legally separated or once you have already started to file for divorce using free divorce papers or an attorney. No matter where you or your marriage may be in the process, Shawn Leamon has professional advice to offer your unique situation. A simple no fault divorce or a high-stakes power struggle are all areas he has vast experience with during his work outside of Divorce and Your Money. Let his advice be a guide to help you get all that you need for a secure financial future in your divorce records. It will not make a difference whether you are getting a divorce in Ohio or a divorce in California if you are following the basic principles set out through Divorce and Your Money’s divorce blog, divorce podcast, and divorce coaching.
RSS Feed Subscribe in Apple Podcasts
2019
September
August
July
June
May
April
March
February
January


2018
December
November
October
September
August
July
June
May
April
March
February
January


2017
December
November
October
September
August
July
June
May
April
March
February
January


All Episodes
Archives
Now displaying: February, 2017
Feb 28, 2017

This article was originally published on Nerdwallet. See the original article here.

By Shawn Leamon

Learn more about Shawn on NerdWallet’s Ask an Advisor

The marital home is many couples’ most valuable asset, so deciding what to do with it during divorce can be difficult. You and your soon-to-be ex have two basic options: sell the home, or one of you stays in it. If you stay, there are two ways to handle the mortgage.

Each option has pros and cons, so you’ll have to weigh what’s right for you carefully.

Sell the home and pay off the mortgage

If you sell your home and pay off your mortgage, you can put both behind you. You can also use the profits to pay down other shared debts. However, if your home appreciated substantially while you owned it, you might owe capital gains taxes on the proceeds.

And depending on the state of your local housing market, you might not be able to sell your home for a profit. If you still owe a balance on your mortgage after the sale, you and your soon-to-be ex-spouse will need to decide how to best pay it off, unless the bank approves a request to release you from liability.

» MORE: How to sell your house

One spouse keeps the home

Perhaps you want to retain some sense of normalcy for your kids, or you have an underwater mortgage. If selling your home isn’t the ideal solution, one of you might want to take it over, along with the mortgage payments. Here, you (or your soon-to-be ex) have two ways to approach this choice.

REFINANCE

If you refinance the mortgage, the new home loan will be in your name only with new terms based on your creditworthiness alone. The interest rate and monthly payments on a refinance could become more expensive. Your ex might need to sign a “quitclaim deed,” which would remove his or her property rights.

KEEP THE MORTGAGE

You can also try to assume the existing mortgage without refinancing. In other words, you remove your ex’s name but keep the same loan terms. If you go this route, the lender will still need to determine your individual creditworthiness.

In this case you would also need a quitclaim deed; otherwise your ex-spouse would still have rights to the home. For instance, in the event of the sale, he or she would be entitled to a portion of the proceeds. More importantly, as a practical matter, almost no bank would allow one person to assume a mortgage without also having sole ownership of the home.

The ease with which this can be done varies. Sometimes it can be done for a few hundred dollars. In some cases, such as with expensive homes in restrictive condo buildings, it can cost tens of thousands of dollars.

Know your options

It can be tough to keep a clear head during this emotional, tumultuous time, but you should still be making rational decisions about your finances. Understanding your options can help you and your soon-to-be ex-spouse make the right financial decisions.

Shawn Leamon is the host of the “Divorce and Your Money” podcast and managing partner of LaGrande Global, with offices in Dallas, New York and Hanover, New Hampshire.

Feb 23, 2017

During your divorce, you may find the discovery process to be probing and invasive. Entering the process prepared with realistic expectations can be comforting and give you some semblance of control throughout the process. Be aware that the discovery process is not designed to make the turmoil of divorce more painful for you on a personal level. It is intended to allow your attorney to be prepared for whatever may come next—whether that means a trial or settlement negotiations.

The discovery process provides you with proof and evidence in situations where there are contested issues. Discovery allows spouses to request information from one another and additional parties throughout the divorce process. It can also be used to determine assets, income, and debts among other things. These can be critical to help put together a realistic picture for your trial or settlement negotiations.

What do you need to know to make your discovery process as painless as possible? Here are three keys to ensuring that you have a successful discovery process:

Discovery becomes necessary when communication is not clear.

Divorce can cloud communication when emotions are running high. This lack of communication can make the discovery process necessary, allowing attorneys to handle what you and your spouse are unable to communicate to one another.

When headed for trial, the discovery process is particularly imperative to assist the attorney in preparing for various arguments, situations, and accusations that the opposing counsel could present. It allows them to put together a comprehensive picture of all your income, assets, and expenses to see the status of your current finances.

The discovery process can give you a clearer financial picture, allowing you to make wise decisions for the future. Knowing where you and your spouse stand financially allows you to think ahead and get what you are entitled to during your settlement negotiations or trial.

Know what you can ask for during discovery.

The discovery process typically entails four major types of documentation that attorneys can request from your spouse or other parties. Understanding what those documents are can help you and your attorney construct a better case.

  • Interrogatory: This type of document lists questions that require your spouse to answer with facts regarding their interpretation of specific events. Your attorney could use a standard form with routine questions, or they may create unique questions that pertain to your particular situation. Be aware that the number of questions that you can ask during this process is limited.
  • Requests for reproduction: In a request for reproduction, both spouses must provide access to documents pertaining to contested issues in the divorce case. This could include tax returns, income statements, bank statements, receipts, photographs, and more.
  • Request for admission: A request for admission asks you or your spouse to admit or deny facts relating to your divorce. Unlike an interrogatory that allows them to answer open-ended questions, a request for admission is more like a “yes” or “no” answer.
  • Deposition: Depositions are more formal than interrogatories, involving a sworn statement transcribed by a court reporter. These scripts count as evidence during your trial, if necessary. This type of situation can also give your attorney an opportunity to see your spouse on the stand before a trial.

Begin to consider what documentation you can provide that would improve your case. What documents could you request from your spouse, or what questions could you ask that would get to the bottom of things? In some situations, you may want to consider requesting photographs that prove adultery, tape recordings, tax returns, or bank statements. Knowing what is available can help you build a better case.

Making a list of the items you would like to request in advance could be helpful in saving your attorney time. The more time you can save your attorney, the more money you can save on your final bill.

You can assist your attorney with discovery.

Attorneys should be willing to allow you to participate in the discovery process, which can mean anything from checking over interrogatories to making a list of useful documents in the request for reproduction. Your assistance can help make the facts clearer to quickly get available information. A clearer idea of the big picture is especially helpful if you and your attorney already know that a trial is imminent.

You should be able to help your attorney pinpoint specific areas that they will need to focus on during a trial or settlement negotiation, if necessary. Items should not be included merely to embarrass or spite your spouse. They should be facts and situations that are critical to the core contested issues in your trial.

Assisting your attorney during the discovery process is another way that you can save them time, and ultimately, save yourself money.

Discovering the Facts

The discovery process can feel incredibly invasive when you are involved in a grueling and emotionally taxing divorce. Providing necessary information when requested allows attorneys to create better cases. They can help you get a clearer picture of your marital financial status, which affects your soon to be single financial status as well.

Preparing adequately for the discovery process can assist you in obtaining all that you are entitled to receive. The discovery process can give you more security for your financial future. Knowing what to expect and how you can offer your own assistance to your attorney gives you an opportunity to save money in the present as well.

The discovery process only has to be as painful as you allow it to be. By entering the process prepared, you can feel more stable, emotionally grounded, and peaceful during this time.

Find this information helpful? Share it with someone who needs it.

Shawn Leamon, MBA, CDFA is the host of the “Divorce and Your Money Show” and Managing Partner of LaGrande Global, with offices in Dallas, New York and Hanover, New Hampshire.

Feb 16, 2017

When most people picture the arduous divorce process, it is seldom imagined without a sharp-dressed attorney in a courtroom. What many people do not consider is that they have ways to get divorced without an attorney, including doing it on your own. A do-it-yourself divorce can be a cost-effective method for some, for example, if you are able to avoid fighting over major issues and come to agreements with your spouse in advance.

A do-it-yourself divorce is not appropriate for every circumstance, as it does have risks. It is only recommended when your divorce is relatively amicable with few complicated financial issues. You and your spouse should agree on children and custody issues. Without a doubt, no abuse, bullying, or mental illness should be involved if you plan to make a do-it-yourself divorce work.

Interested in what it takes to stay out of court or even a lawyer’s office altogether? Here are three ways you can make a do-it-yourself divorce work for you:

1) Learn the local rules for divorce in your area.

Each state has its own set of rules and guidelines, some of which can even be dependent on the particular county where you live. Many individuals turn to online sites that tout legal advice and suggestions, including the popular Legal Zoom and Nolo. Unfortunately, these avenues often cannot and do not account for specific state rules involved in a divorce.

You need to check specifically with your state laws and other country resources to determine what is required and when. These resources can help you decide if you and your spouse need to file for separation, what specific paperwork needs to be filed, and when and where to file it. Contacting the courthouse clerk may put you on the path to finding the right resources for your situation. General questions can often be answered by the resources they have available or through a family court website.

Educating yourself on the proper rules and finding the right resources in the beginning can prevent you from being ensnared in red tape. Without a clear direction in mind for where you are headed, you could end up filing the wrong paperwork at the wrong time, effectively lengthening the time it takes for your divorce to be finalized.

2) Understand the intricacies of dividing assets.

Misconceptions regarding property division in the dissolution of a marriage tend to lead people astray. You may not want to trust conventional wisdom or even the advice of a friend. Splitting up your marital assets can be tricky, as not all states divide property straight down the middle between two spouses.

If you are unsure of the laws in your county or state, you could be getting less than what you are entitled to receive. In certain situations, one spouse may need more finances than the other, rendering them eligible for a greater share in the divorce settlement. A division of 60/40 or an even greater spread could be necessary depending on your unique circumstances.

Dividing property and marital assets is a complicated subject to tackle. Divorces that involve children and custody agreements, alimony, or more complicated financial situations, such as owning many investments or divvying up large retirement savings accounts, may be better left to an attorney. When things become messy and complicated with finances and children, you could be putting your financial future at risk by working through the situation imperfectly with a do-it-yourself divorce.

When you pursue a DIY divorce, you should know that splitting your assets evenly might not be the right move for you. You will need to consider the bigger picture: what do you need not just in the coming months but ten years from now? Your financial future can be made more secure by receiving all that you are entitled to during the divorce settlement, helping you to avoid regrets later on down the road.

3) Consider hiring other professionals to help you work through the process.

Healthy and open communication with your soon to be ex is a necessary component to a successful do-it-yourself divorce. When you cannot speak amicably with one another, the end result might be a less than ideal settlement for you. In the midst of the frustrating situation, you may agree to a settlement that is less than you deserve simply because you want to move on with the rest of your life.

Consider bringing in professionals (other than an attorney) to assist you with this part of the process. You can hire a mediator to help both of you with negotiating and discussing your settlement in a productive and healthier manner. A mediator is often an attorney, a retired judge, or some other trained professional. This person may also be able to help you develop a clearer settlement and give you an idea of what you could be entitled to receive. You are less likely to be bullied into signing an agreement you are unsatisfied with when you have a more neutral environment for productive conversations.

You may also want to consider hiring a Certified Divorce Financial Analyst (CDFA). These professionals can help you understand the financial intricacies of dividing your assets. They are trained professionals who work with you to ensure that you understand the long-term implications of a particular settlement in terms of your financial future and security.

Communicating privately with a spouse in an attempt to divide your property and work through your assets can lead you to agree to an unfavorable settlement. If you cannot communicate with one another productively, you will be putting your financial future at risk. In these situations, you should consider bringing in professionals to make your do-it-yourself divorce easier, less stressful, and more successful. Other professionals can help facilitate those conversations for less cost than an attorney and with a higher degree of specialty regarding negotiations and mediation.

When Do-It-Yourself Doesn’t Work

What can you do if you need to divorce on a dime but you are faced with more complicated issues that do not lend themselves well to a completely do-it-yourself divorce? When hiring a handful of additional professionals does not seem to be enough, you can also consider hiring an attorney for “unbundled” legal services.

Unbundled legal services allow you to purchase the time, expertise, and advice of an attorney without paying them to manage your entire divorce. If you feel comfortable enough filing and drafting your own paperwork, you have the freedom to do so without handing over a check to your attorney. When all you need is some advice to deal with trickier situations, including alimony, child support, or custody agreements, you may want to seek an attorney who offers this service. By only paying for what you need, you will still be saving a small fortune over a divorce that is handled entirely by an attorney.

Remember that even in the midst of a do-it-yourself divorce, you can still have professionals join your team for assistance. You can find those who are highly trained in the areas where you need assistance and often for less cost than an attorney. Work hard to educate yourself about state laws and regulations for your area so that you can manage your divorce as much as possible on your own. It is easily the most cost-effective way to handle your imminent divorce, but you must be prepared for the next steps to secure your financial future.

Find this information helpful? Please share it with someone else who needs it.

Shawn Leamon, MBA and Certified Divorce Financial Analyst, is the host of the Divorce and Your Money Show, the #1 show on iTunes that discusses personal finance issues in divorce. He is also author of Divorce and Your Money: The No-Nonsense Guide, available on Amazon. Learn more at www.divorceandyourmoney.com.

Disclaimer: Divorce and Your Money and its affiliates do not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances

Feb 9, 2017

It can be tempting to try to navigate the waters of your divorce on your own. After all, a do-it-yourself divorce is easily the least expensive method of finalizing the end of your marriage—in theory, that is. Trying to complete your divorce on your own can have serious implications for your financial future, especially if you are not considering all future possibilities.

Hiring a divorce attorney in the beginning is an absolute necessity to save you the financial and emotional headache that accompanies a do-it-yourself divorce. Where can you go wrong without a divorce attorney? You absolutely MUST hire a divorce attorney to help you for three main reasons.

(1) Incorrect paperwork can cost you time and money in the end.

The reality is that most of us do not have the expertise for filing our own legal paperwork. This unfamiliarity can lead to mistakes in determining which documents to complete and how to file them as well as obtaining a court date and managing any potential court proceedings. Many people are now turning to online resources, such as Legal Zoom, for advice on handling their divorce without an attorney. These sites fall short, however, as they do not and cannot cover all regulations for each individual state and circumstance.

Forgetting to file the proper paperwork or missing critical items in your settlement can also lead to added expense with future legal proceedings, leaving you financially strapped in the years ahead. Consider issues involved with alimony and child support. Laws differ from state to state, and these are definitely some of the more complicated aspects of a settlement to negotiate. Most individuals also have a hard time considering the long-term tax consequences of certain financial decisions and divisions regarding your settlement agreement.

Hiring an attorney to assist you will save you money and time in the end. Fortunately, you can even hire an attorney who will “unbundle” your services. If you and your spouse are relatively amicable and good communication is possible, you can sort out most of your divorce on your own. An attorney who unbundles their services can be used just for limited consultations, filing paperwork, or drafting your documents.

Unbundling a full-service divorce attorney can provide the legal assistance you need to file your divorce properly as well as save you money in the grand scheme of things by helping you avoid future court dates and proceedings to correct your mistakes.

(2) Getting less than you deserve can hurt your financial future.

State rules differ on how they divide your assets, and not all states believe in splitting marital assets 50/50. You will also need to be aware that not everything is necessarily considered a marital asset. Do you know what you are actually entitled to during your divorce under your state laws?

Sticky situations regarding property that belongs to only one spouse as well as such things as retirement accounts and shared debt can be difficult to divide. If each spouse maintained his or her own property and retirement accounts before the nuptials, it may be difficult to determine what is considered a marital asset in the present situation. Most individuals cannot plan for the long-term tax implications of those divisions, and they lack the insight to know exactly what they could be entitled to receive.

If you get less than you deserve in the settlement now, your financial future is at stake. Hiring a divorce attorney can help you achieve a fair and equitable settlement with everything you are entitled to receive. Taking care of the division of property and assets properly the first time allows you to avoid future legal proceedings (and the costs associated with them) to make corrections.

(3) You need to protect yourself from a bullying spouse.

In the case of an abusive situation (whether it is physical, verbal, emotional, or otherwise), you need to do everything you can to ensure your protection. Attempting to negotiate a divorce settlement behind closed doors with an abusive spouse is a recipe for disaster—both for your physical safety and your financial future.

If your marriage is coming to an end due to the behavior of your abusive or bullying spouse, you definitely need to hire a divorce attorney right away. The right attorney can help put distance between you and your spouse to prevent them from manipulating or frightening you into agreeing to an unfair settlement. Without effective communication, you are really putting yourself at risk for having an inequitable settlement that will put for your financial future further at risk.

A bullying or abusive spouse is also likely to seek his or her own attorney. Attempting to navigate your divorce on your own while your spouse has legal assistance does not set you up for success. Should your case make it to trial, it is likely that you will not fare well in the court proceedings on your own.

An attorney can help you think through every situation that could arise in the future that would be affected by your settlement and divorce negotiation. Their emotional distance from a highly charged situation can give you some much-needed perspective to protect yourself from your spouse and get what you are entitled to from what remains a marital asset.

You NEED a Divorce Lawyer

At a minimum, hiring a divorce attorney to provide legal assistance in filing your paperwork is a wise investment for your newly single lifestyle. Attempting to settle your divorce without legal assistance, especially in complicated situations involving alimony or children, can put your entire financial future at risk and cost you more in the long run.

Divorce is a business transaction, and protecting yourself both physically and financially should be a top concern for you. A divorce attorney could be just the ally you need to ensure that you have the emotional distance necessary to fight for all that you are entitled to receive during the divorce process. It is well worth the expense of some minor legal fees to be in the best spot for your financial future.

Find this information helpful? Please share it with someone else who needs it.

Shawn Leamon, MBA and Certified Divorce Financial Analyst, is the host of the Divorce and Your Money Show, the #1 show on iTunes that discusses personal finance issues in divorce. He is also author of Divorce and Your Money: The No-Nonsense Guide, available on Amazon. Learn more at www.divorceandyourmoney.com.

Disclaimer: Divorce and Your Money and its affiliates do not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.

Feb 2, 2017

This was originally published on Divorce and Your Money here

Why You Must Read This Guide in 2017 if You’re Getting Divorced

Whether you oversaw family finances while married or this is your first time looking at taxes, this guide will help you. Divorce is complicated, and taxes are especially complicated. You need to pay special attention to taxes in the years you are going through divorce and the year you are officially single. Making a mistake with your taxes during the divorce process can affect you for decades and perhaps cost tens of thousands of dollars or more. This guide will help you easily navigate the complex elements of taxes during divorce.
 
In Your Easy 2017 Guide to Taxes in Divorce, you will learn the most important tax topics to consider during divorce. While taxes are never a fun subject, they are necessary, and you will receive reliable information that you need. In fact, the Internal Revenue Service (IRS) has various “publications” that provide detailed information on tax issues. IRS Publication 504, Divorced or Separated Individuals is a 28-page booklet about tax issues in divorce. If you love studying and reading about taxes, you can check it out and skip this guide, but I have read Publication 504 for you. I’m only going to give you the best parts in an easy-to-understand format.
 
We will cover four major topics: 
1) What filing status do you choose when you are getting divorced?
2) Paying or Receiving Spousal Support? Avoid these traps.
3) Child support is easy from a tax perspective.
4) Five important tax tips when negotiating your divorce settlement.
 
A quick disclaimer: I am not an accountant or an attorney. I’m a Certified Divorce Financial Analyst. I cannot provide tax or legal advice, and you need to consult experts about your specific case. Taxes and laws vary by state, and everyone’s situation is different. While this guide will help you understand the major issues, be sure to consult your own experts.
 
When you think about personal taxes, we are going to focus on Form 1040, which is the U.S. Individual Income Tax Return. Give it a quick review. It’s short and quite simple . . . until you start filling out each line of the form. We’re going to cover a few high-level issues related to Form 1040 that are particularly relevant as you’re getting divorced starting with “Filing Status.”
 
1) What Filing Status do you choose when you are getting divorced?Form 1040 provides five options:
•   Married filing jointly
•   Married filing separately
•   Head of household
•   Single
•   Qualifying widower
 
Except for “qualifying widower,” which is a special situation that is not related to divorce, we will go through each of these options in more depth, as your Filing Status helps determine how much tax you must pay on your income.  This is a very important section that you need to understand. Even though it’s just a quick checkbox, what you select affects how much and what tax deductions, exemptions, and credits you will receive—potentially for many years to come. (For our purposes, you don’t need to know the difference between deductions, exemptions, and credits, but you should know that the more you have, the less tax you will pay.)
 
Your Filing Status is mostly determined on December 31 of the tax year. If you were officially divorced in March or November 2016, meaning that a judge signed your final divorce decree, it means you were divorced for the whole year. Legal separation counts as divorce for our purposes as well but only if your state recognizes it. 
 
Filing Status Options
If on December 31 of the tax year you are:
 
Married
Married Filing Jointly
Married Filing Separately
Head of Household
 
Divorced or Legally Separated
Head of Household
Single
 
Married Filing Jointly
For most people going through divorce, this is the best option if you want to minimize your annual tax bill. When you file your taxes as married filing jointly, both you and your spouse will file a joint tax return. It will include each of your incomes, exemptions, deductions, and credits, and you will both sign the same return.
 
While Married Filing Jointly usually provides the most tax benefits, the major downside is that you are legally liable for what appears on the tax return. If you owe taxes, even if you did not earn the income, you are equally responsible for those taxes with your spouse. If tax penalties or other issues are involved, you are liable because you signed a joint return. You should be careful in the event it is later discovered there was an issue with the tax return you signed. This applies even after the divorce is over and even if the divorce decree states otherwise. If it’s later discovered there was an issue with a joint tax return, you are liable since your name is on the document. 
 
It is not all bad news, however, because if you do find yourself in a situation where you are unexpectedly liable for something on a joint tax return, you have some options if you look for information from the IRS regarding innocent spouse relief, separation of liability, or equitable relief.
 
Conclusion: For Married Filing Jointly, even though you will usually end up paying less in taxes, if you suspect tax issues or potential fraud may be involved, you may want to consider Married Filing Separately. 
 
Married Filing Separately
When you are still legally married, you and your spouse can file separate tax returns by selecting Married Filing Separately. If you select this option, from a tax perspective, you are only considering your individual income, exemptions, deductions, and credits. This option is usually more expensive from a tax perspective because many tax benefits are related to marriage. The IRS presents a set of warnings if you choose Married Filing Separately:
 
1. Your tax rate generally is higher than it would be on a joint return.
2. Your exemption amount for figuring the alternative minimum tax is half of that allowed on a joint return.
3. You can’t take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000 on a joint return). If you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. See Pub. 503 for more information.
4. You can’t take the earned income credit.
5. You can’t take the exclusion or credit for adoption expenses in most cases.
6. You can’t take the credit for higher education expenses (American opportunity and lifetime learning credits), the deduction for student loan interest, or the tuition and fees deduction.
7. You can’t exclude the interest from qualified savings bonds that you used for higher education expenses.
8. If you lived with your spouse at any time during the tax year:
    a. You can’t claim the credit for the elderly or the disabled, and
    b. You will have to include in income a higher percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.
9. The following credits and deductions are reduced at income levels that are half those for a joint return.
    a. The child tax credit.
    b. The retirement savings contributions credit.
    c. The deduction for personal exemptions.
    d. Itemized deductions.
10. Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).
11. If your spouse itemizes deductions, you can’t claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.”
 
As you can see, you will probably face a higher tax bill when you are Married Filing Separately than Married Filing Jointly. So why would you do it? It all boils down to liability. If your spouse does something suspicious, such as incorrectly filing taxes, hiding money, or is involved in illegal activities, and you sign a joint tax return, it means you are liable for many of those consequences. So even though you may face a higher tax bill, a separate return means that you are only liable for what you put on your own tax return, not what your spouse does. 
 
Head of Household
Filing as Head of Household is an option whether you are married or already divorced and have children. If you are still legally married, however, there is a special set of requirements you must meet here
 
If you have children, filing as Head of Household will lead to the lowest tax bill as opposed to filing as Single. The main requirements for qualifying for Head of Household are 1) you have a child who lives with you more than half the year and 2) you need to have paid more than half the costs of keeping up the home. A full set of rules is provided in Publication 504
 
The benefits of claiming Head of Household status is that you have higher deductions, more credits, and an overall lower tax rate than if you file your taxes as Single. In general, but not always, Head of Household has more benefits than Married Filing Separately. 
 
If you have more than one child, it is possible that both you and your (ex-) spouse can file as Head of Household. You both must meet certain requirements, but it is a possibility.
 
Single
If you don’t have any children or if you cannot claim Head of Household status, you must file as Single, which means you will pay the highest tax rates. As the saying goes, “It is what it is.”
 
2) Paying or Receiving Spousal Support? Avoid these traps.
Spousal support, also called alimony or maintenance, is a payment made to a former spouse as part of a divorce or separation agreement. Spousal support is taxable for the recipient and tax deductible for the payer. If you receive spousal support, that money counts as income to you, and you must pay taxes on it. If you are paying spousal support, those payments are deductible from your income. 
 
Only payments specifically made as part of the divorce or separation agreement are considered alimony for tax purposes, meaning that voluntary or bonus payments are not included.  Temporary spousal support is regarded the same as permanent spousal support from a tax perspective. Certain types of payments do not qualify as spousal support:
•   Child support
•   Noncash payments
•   Money for keeping up the payer’s property, such as repairs on a home
•   Use of the payer’s property, for example, lending a home to a former spouse
 
You can, however, make payments to a third party on behalf of an ex-spouse and qualify for spousal support. For example, payments for such things as medical expenses, taxes, and tuition can still qualify as spousal support. Payments must be made in cash, so transferring property or providing a service for payment does not count as spousal support in the eyes of the IRS. 
 
Advanced Tip: Since spousal support is taxable income for the recipient, you can use income from spousal support payments to contribute to retirement accounts. 
 
3) Child Support is easy from a tax perspective.
Child support has different tax rules than spousal support. Child support is not tax deductible for the payer and is not taxable for the recipient. Child support comes from after-tax money. What does that mean in practice? If you are paying child support, it is much more expensive than receiving child support because you do not receive any tax benefits for paying it. If you are receiving child support, it’s a big benefit for you because that money is not taxed. 
 
4) Five important tax tips when negotiating your divorce settlement.
Tip 1: Get your own CPA in the years during and immediately after divorce. 
You need to have your own CPA when you are getting divorced and the year immediately following your divorce. It will cost you a little more money than simply using your spouse’s CPA or software, such as HR Block or TurboTax, but the many complex pitfalls that may occur during divorce can cost you dearly if you’re not careful. What if your spouse makes a mistake in preparing the tax returns? What if your spouse commits fraud? Anything can happen during divorce, and you need your own CPA to help you avoid major issues.
 
Taxes are complicated, and having a CPA to help you immediately following your divorce can ensure that you save money in tax payments. You need to be aware of several tax breaks and changes during divorce, and it’s better to complete things correctly than to find out years down the line that you have been paying too much!
 
Tip 2: Property transferred as part of the divorce is generally tax free . . .
You should know that most property transferred “incident to divorce” is tax free. Property includes such things as homes, cars, and investment accounts. If transferred as part of the divorce, there is no tax benefit or disadvantage to receiving the assets. For any assets you receive, you need to know the “tax basis” or “cost basis.” This amount is usually the purchase price of the property (though it can get complicated when discussing such assets as homes). If you sell any asset later, the cost basis will be relevant for calculating capital gains. Also note that there is no step up or change in cost basis for assets transferred as part of divorce. 
 
Advanced Tip: Consider getting spousal support paid in a lump sum, as you can avoid counting that money as future income if the money is transferred as part of the property settlement. 
 
But don’t ignore the tax consequences.
If you plan on selling all or part of any property you receive during divorce, you need to understand the tax consequences. Some assets (e.g., stock that has increased in value, retirement accounts, homes) may have very substantial tax consequences if you need the funds. Imagine negotiating for an investment account in divorce worth $1,000, and when you sell it for money you find out after taxes that it’s worth only $500? It’s a common situation that many people forget about during divorce. Consider getting help from your CPA or Certified Divorce Financial Analyst (CDFA) to help you analyze the tax impact of selling your property. 
 
Tip 3: Selling your home while married can save $250,000 in taxes.
If you plan to sell your home in the near future, you can take advantage of substantial tax benefits by selling the house while still married. You can exclude the first $500,000 of capital gains taxes (the tax you pay when property increases in value) on your main residence when you are still married. If you wait until you are divorced, that exclusion reduces to $250,000, so you could end up paying much more in taxes than necessary. 
 
Tip 4: Don’t forget the tax refund.
Are you and your soon to be ex-spouse expecting a tax refund? Don’t forget to negotiate who keeps the refund. Don’t let your spouse steal it from you, and you should not steal it from her either. 
 
Tip 5: Child-related tax benefits are very valuable. 
If you have children, you should consider negotiating for various child-related tax benefits, such as the Standard Deduction, Dependency Exemption, Child Credit, and American Opportunity Credit. If you have primary custody of the children, you will have an easier time receiving child-related tax benefits. You can negotiate as part of your settlement to keep many child-related tax benefits even if you don’t have primary custody. Depending upon your circumstances, this can be a valuable benefit that most people forget about.
 
Final thoughts
Taxes are usually one of the last items on people’s lists when it comes to divorce, even though it requires just as much time and attention as every other element in the divorce process. Failure to properly consider your options with taxes can lead to tens of thousands of dollars in expenses and years of regret. Make sure you make the right tax decisions for your situation to help protect your financial interests and future. 
 
For further reading, please consider the following IRS Publications available on https://www.irs.gov.
 
17—Your Federal Income Tax
504—Divorced or Separated Individuals
521—Moving Expenses
523—Selling Your Home
590—Individual Retirement Arrangements

Find this information helpful? Please share it with someone else who needs it.

Shawn Leamon, MBA and Certified Divorce Financial Analyst, is the host of the Divorce and Your Money Show, the #1 show on iTunes that discusses personal finance issues in divorce. He is also author of Divorce and Your Money: The No-Nonsense Guide, available on Amazon. Learn more at www.divorceandyourmoney.com.

Disclaimer: Divorce and Your Money and its affiliates do not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.

Feb 1, 2017

Why You Must Read This Guide in 2017 if You’re Getting Divorced

Whether you oversaw family finances while married or this is your first time looking at taxes, this guide will help you. Divorce is complicated, and taxes are especially complicated. You need to pay special attention to taxes in the years you are going through divorce and the year you are officially single. Making a mistake with your taxes during the divorce process can affect you for decades and perhaps cost tens of thousands of dollars or more. This guide will help you easily navigate the complex elements of taxes during divorce.
 
In Your Easy 2017 Guide to Taxes in Divorce, you will learn the most important tax topics to consider during divorce. While taxes are never a fun subject, they are necessary, and you will receive reliable information that you need. In fact, the Internal Revenue Service (IRS) has various “publications” that provide detailed information on tax issues. IRS Publication 504, Divorced or Separated Individuals is a 28-page booklet about tax issues in divorce. If you love studying and reading about taxes, you can check it out and skip this guide, but I have read Publication 504 for you. I’m only going to give you the best parts in an easy-to-understand format.
 
We will cover four major topics: 
1) What filing status do you choose when you are getting divorced?
2) Paying or Receiving Spousal Support? Avoid these traps.
3) Child support is easy from a tax perspective.
4) Five important tax tips when negotiating your divorce settlement.
 

A quick disclaimer: I am not an accountant or an attorney. I’m a Certified Divorce Financial Analyst. I cannot provide tax or legal advice, and you need to consult experts about your specific case. Taxes and laws vary by state, and everyone’s situation is different. While this guide will help you understand the major issues, be sure to consult your own experts.
 
When you think about personal taxes, we are going to focus on Form 1040, which is the U.S. Individual Income Tax Return. Give it a quick review. It’s short and quite simple . . . until you start filling out each line of the form. We’re going to cover a few high-level issues related to Form 1040 that are particularly relevant as you’re getting divorced starting with “Filing Status.”

1) What Filing Status do you choose when you are getting divorced?

Form 1040 provides five options:
•   Married filing jointly
•   Married filing separately
•   Head of household
•   Single
•   Qualifying widower
 

Except for “qualifying widower,” which is a special situation that is not related to divorce, we will go through each of these options in more depth, as your Filing Status helps determine how much tax you must pay on your income.  This is a very important section that you need to understand. Even though it’s just a quick checkbox, what you select affects how much and what tax deductions, exemptions, and credits you will receive—potentially for many years to come. (For our purposes, you don’t need to know the difference between deductions, exemptions, and credits, but you should know that the more you have, the less tax you will pay.)
 
Your Filing Status is mostly determined on December 31 of the tax year. If you were officially divorced in March or November 2016, meaning that a judge signed your final divorce decree, it means you were divorced for the whole year. Legal separation counts as divorce for our purposes as well but only if your state recognizes it. 

Filing Status Options

If on December 31 of the tax year you are:

Married

Married Filing Jointly
Married Filing Separately
Head of Household

Divorced or Legally Separated
Head of Household
Single

Married Filing Jointly

For most people going through divorce, this is the best option if you want to minimize your annual tax bill. When you file your taxes as married filing jointly, both you and your spouse will file a joint tax return. It will include each of your incomes, exemptions, deductions, and credits, and you will both sign the same return.
 
While Married Filing Jointly usually provides the most tax benefits, the major downside is that you are legally liable for what appears on the tax return. If you owe taxes, even if you did not earn the income, you are equally responsible for those taxes with your spouse. If tax penalties or other issues are involved, you are liable because you signed a joint return. You should be careful in the event it is later discovered there was an issue with the tax return you signed. This applies even after the divorce is over and even if the divorce decree states otherwise. If it’s later discovered there was an issue with a joint tax return, you are liable since your name is on the document. 
 
It is not all bad news, however, because if you do find yourself in a situation where you are unexpectedly liable for something on a joint tax return, you have some options if you look for information from the IRS regarding innocent spouse relief, separation of liability, or equitable relief.
 
Conclusion: For Married Filing Jointly, even though you will usually end up paying less in taxes, if you suspect tax issues or potential fraud may be involved, you may want to consider Married Filing Separately. 

Married Filing Separately

When you are still legally married, you and your spouse can file separate tax returns by selecting Married Filing Separately. If you select this option, from a tax perspective, you are only considering your individual income, exemptions, deductions, and credits. This option is usually more expensive from a tax perspective because many tax benefits are related to marriage. The IRS presents a set of warnings if you choose Married Filing Separately:
 
1. Your tax rate generally is higher than it would be on a joint return.
2. Your exemption amount for figuring the alternative minimum tax is half of that allowed on a joint return.
3. You can’t take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000 on a joint return). If you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. See Pub. 503 for more information.
4. You can’t take the earned income credit.
5. You can’t take the exclusion or credit for adoption expenses in most cases.
6. You can’t take the credit for higher education expenses (American opportunity and lifetime learning credits), the deduction for student loan interest, or the tuition and fees deduction.
7. You can’t exclude the interest from qualified savings bonds that you used for higher education expenses.
8. If you lived with your spouse at any time during the tax year:
    a. You can’t claim the credit for the elderly or the disabled, and
    b. You will have to include in income a higher percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.
9. The following credits and deductions are reduced at income levels that are half those for a joint return.
    a. The child tax credit.
    b. The retirement savings contributions credit.
    c. The deduction for personal exemptions.
    d. Itemized deductions.
10. Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).
11. If your spouse itemizes deductions, you can’t claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.”
 
As you can see, you will probably face a higher tax bill when you are Married Filing Separately than Married Filing Jointly. So why would you do it? It all boils down to liability. If your spouse does something suspicious, such as incorrectly filing taxes, hiding money, or is involved in illegal activities, and you sign a joint tax return, it means you are liable for many of those consequences. So even though you may face a higher tax bill, a separate return means that you are only liable for what you put on your own tax return, not what your spouse does. 

Head of Household

Filing as Head of Household is an option whether you are married or already divorced and have children. If you are still legally married, however, there is a special set of requirements you must meet here
 
If you have children, filing as Head of Household will lead to the lowest tax bill as opposed to filing as Single. The main requirements for qualifying for Head of Household are 1) you have a child who lives with you more than half the year and 2) you need to have paid more than half the costs of keeping up the home. A full set of rules is provided in Publication 504
 
The benefits of claiming Head of Household status is that you have higher deductions, more credits, and an overall lower tax rate than if you file your taxes as Single. In general, but not always, Head of Household has more benefits than Married Filing Separately. 
 
If you have more than one child, it is possible that both you and your (ex-) spouse can file as Head of Household. You both must meet certain requirements, but it is a possibility.

Single

If you don’t have any children or if you cannot claim Head of Household status, you must file as Single, which means you will pay the highest tax rates. As the saying goes, “It is what it is.”

2) Paying or Receiving Spousal Support? Avoid these traps.

Spousal support, also called alimony or maintenance, is a payment made to a former spouse as part of a divorce or separation agreement. Spousal support is taxable for the recipient and tax deductible for the payer. If you receive spousal support, that money counts as income to you, and you must pay taxes on it. If you are paying spousal support, those payments are deductible from your income. 
 
Only payments specifically made as part of the divorce or separation agreement are considered alimony for tax purposes, meaning that voluntary or bonus payments are not included.  Temporary spousal support is regarded the same as permanent spousal support from a tax perspective. Certain types of payments do not qualify as spousal support:
•   Child support
•   Noncash payments
•   Money for keeping up the payer’s property, such as repairs on a home
•   Use of the payer’s property, for example, lending a home to a former spouse
 
You can, however, make payments to a third party on behalf of an ex-spouse and qualify for spousal support. For example, payments for such things as medical expenses, taxes, and tuition can still qualify as spousal support. Payments must be made in cash, so transferring property or providing a service for payment does not count as spousal support in the eyes of the IRS. 
 
Advanced Tip: Since spousal support is taxable income for the recipient, you can use income from spousal support payments to contribute to retirement accounts. 

3) Child Support is easy from a tax perspective.

Child support has different tax rules than spousal support. Child support is not tax deductible for the payer and is not taxable for the recipient. Child support comes from after-tax money. What does that mean in practice? If you are paying child support, it is much more expensive than receiving child support because you do not receive any tax benefits for paying it. If you are receiving child support, it’s a big benefit for you because that money is not taxed. 

4) Five important tax tips when negotiating your divorce settlement.

Tip 1: Get your own CPA in the years during and immediately after divorce. 

You need to have your own CPA when you are getting divorced and the year immediately following your divorce. It will cost you a little more money than simply using your spouse’s CPA or software, such as HR Block or TurboTax, but the many complex pitfalls that may occur during divorce can cost you dearly if you’re not careful. What if your spouse makes a mistake in preparing the tax returns? What if your spouse commits fraud? Anything can happen during divorce, and you need your own CPA to help you avoid major issues.
 
Taxes are complicated, and having a CPA to help you immediately following your divorce can ensure that you save money in tax payments. You need to be aware of several tax breaks and changes during divorce, and it’s better to complete things correctly than to find out years down the line that you have been paying too much!

Tip 2: Property transferred as part of the divorce is generally tax free . . .

You should know that most property transferred “incident to divorce” is tax free. Property includes such things as homes, cars, and investment accounts. If transferred as part of the divorce, there is no tax benefit or disadvantage to receiving the assets. For any assets you receive, you need to know the “tax basis” or “cost basis.” This amount is usually the purchase price of the property (though it can get complicated when discussing such assets as homes). If you sell any asset later, the cost basis will be relevant for calculating capital gains. Also note that there is no step up or change in cost basis for assets transferred as part of divorce. 
 
Advanced Tip: Consider getting spousal support paid in a lump sum, as you can avoid counting that money as future income if the money is transferred as part of the property settlement. 
 
But don’t ignore the tax consequences.
If you plan on selling all or part of any property you receive during divorce, you need to understand the tax consequences. Some assets (e.g., stock that has increased in value, retirement accounts, homes) may have very substantial tax consequences if you need the funds. Imagine negotiating for an investment account in divorce worth $1,000, and when you sell it for money you find out after taxes that it’s worth only $500? It’s a common situation that many people forget about during divorce. Consider getting help from your CPA or Certified Divorce Financial Analyst (CDFA) to help you analyze the tax impact of selling your property. 

Tip 3: Selling your home while married can save $250,000 in taxes.

If you plan to sell your home in the near future, you can take advantage of substantial tax benefits by selling the house while still married. You can exclude the first $500,000 of capital gains taxes (the tax you pay when property increases in value) on your main residence when you are still married. If you wait until you are divorced, that exclusion reduces to $250,000, so you could end up paying much more in taxes than necessary. 

Tip 4: Don’t forget the tax refund.

Are you and your soon to be ex-spouse expecting a tax refund? Don’t forget to negotiate who keeps the refund. Don’t let your spouse steal it from you, and you should not steal it from her either. 

Tip 5: Child-related tax benefits are very valuable. 

If you have children, you should consider negotiating for various child-related tax benefits, such as the Standard Deduction, Dependency Exemption, Child Credit, and American Opportunity Credit. If you have primary custody of the children, you will have an easier time receiving child-related tax benefits. You can negotiate as part of your settlement to keep many child-related tax benefits even if you don’t have primary custody. Depending upon your circumstances, this can be a valuable benefit that most people forget about.

Final thoughts

Taxes are usually one of the last items on people’s lists when it comes to divorce, even though it requires just as much time and attention as every other element in the divorce process. Failure to properly consider your options with taxes can lead to tens of thousands of dollars in expenses and years of regret. Make sure you make the right tax decisions for your situation to help protect your financial interests and future. 
 
For further reading, please consider the following IRS Publications available on https://www.irs.gov.
 
17—Your Federal Income Tax
504—Divorced or Separated Individuals
521—Moving Expenses
523—Selling Your Home

Find this information helpful? Please share it with someone else who needs it.

Shawn Leamon, MBA and Certified Divorce Financial Analyst, is the host of the Divorce and Your Money Show, the #1 show on iTunes that discusses personal finance issues in divorce. He is also author of Divorce and Your Money: The No-Nonsense Guide, available on Amazon. Learn more at www.divorceandyourmoney.com.

Disclaimer: Divorce and Your Money and its affiliates do not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.

Want more free divorce advice and tips?

Subscribe to the Divorce and Your Money Podcast, trusted by over 50,000 people across the United States.

1