3 Reasons You Need Financial Guidance During Divorce


1. If you don’t have kids or they have grown up; the ONLY thing there is to argue about in a divorce is money.

2. The financial decisions made during your divorce will very likely be the biggest and most difficult you will ever make set amid the most emotionally chaotic time of your life.

3. The decisions you make today will affect your financial safety and security for the rest of your life.



Beware Stock Redemption for Small Business in Divorce

small business, divorce financial analyst

Many of my clients own small businesses which bring a mountain of complications to the financial negotiations of divorce. From cash flow analysis to business valuation to perquisite incomes to ownership interests, the existence of a small business in a family net worth statement brings challenges and opportunities. One of the challenges becomes apparent when a couple wants to negotiate for one party to be awarded a business as part of the divorce settlement.

Here’s an example

Steve and Martha co-own a business we will call Divorce, Inc.. During the marriage Steve ran the business, was the face to all of the sales meetings and was generally known as the business man of the family. Martha had the idea for the business but preferred to stay behind the scenes and manage employees. Steve and Martha have always owned the 100 shares of stock 50/50. During divorce negotiations it became obvious that they were not going to both continue working in the business and so one should by the other’s interest. Since Steve was the face of the business and Martha had already set her heart on doing other things it was decided Steve would buy Martha’s interest in Divorce, Inc. at a total community property value of $2,000,000 after an appraisal was completed. There are a couple of ways to facilitate this transaction. This is where it becomes sticky.


  1. Divorce, Inc. will write Martha a check for $1,000,000 to buy her 50 shares from her.
  2. Martha will be keep other community assets (house, tax affected retirement accounts, brokerage account) worth $2,000,000 to offset the value of Divorce, Inc..
  3. Divorce, Inc. will purchase Martha’s 50 shares of stock over time at set prices based on an agreed upon stock buy-back plan.
  4. Steve will purchase Martha’s 50 shares of stock over time at price and on a timeline delineated in an agreement.
  5. Steve will purchase all of Martha’s 50 shares today by structuring a promissory note to be paid over time.
  6. Structure a buy-out payment over time to be payable as spousal support from Steve to Martha.


The result?

As you can tell you have options if you are negotiating the sale of a business interest pursuant to your divorce. Litigating your divorce removes many of these options as a judge is unlikely to create a situation that requires the couple to remain attached for long periods of time after the divorce. This means options #3 and #4 are thrown out. If there are no significant other assets in the estate option #2 goes away. If there is not a significant cash position on the books of the corporation option #1 goes away leaving only option #5. A court is not really allowed to be creative which rules out most of these on it’s own.

Each of these options also has complicated tax considerations to be incorporated when deciding how to structure a buy-out. Many tax professionals believe the only way to guarantee a clear understanding of how a tax court would rule is to ask for a private ruling. Some believe structuring a transfer of the stock inside of the Section 1041 six year requirement covers you. What is fairly clear is that forcing a Divorce, Inc. to purchase shares from Martha would result in some form of a taxable event so it may be best to consider options involving immediate offset with other assets or structuring a collateralized promissory note. Consult with your Divorce Financial Planning expert and Tax expert before deciding what works best for you before making a decision.



wellspring divorce advisors

Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.

Contact us to find out how we can help you through this process.

Is Alimony Payment Tax Deductible

The general answer is yes but there are complications. Here is one of them.

Today a client asked if his Alimony (Spousal Support in California) payment was tax deductible for 2011 even if he is still technically married for tax purposes.

The answer is YES…..BUT.

Tax filing status is determined by marital status on December 31st of a given year so if he was still married on December 31st he generally (there are limited exceptions where it may be possible to claim Head of Household status) must file either Married Jointly or Married Separate. In order to deduct the alimony payments they must choose Married Separately. If the couple, now separated but not yet divorced, AGREE to both file Married Separately the alimony will be deductible to the payer and taxable to the payee. The BUT comes into play when you consider all of the other side effects of the Married Separate filing status. Consult your tax preparer for full details.

California Divorce Myths

Everyone has a friend or family member who has been divorced. Many will have heard horror stories or received tips about what they should do or what they should expect. I have heard “Mom always gets the kids” and “I earned the pension so it’s mine” People also make up there own expectations like “I made all the money, so I’ll get all the assets” or “I’ll get half of everything”. Here is a list of the top 11 Divorce Financial Planning Myths that come to my mind.


1. “I made all the money, so I’ll get the assets”
2. “Dad has to pay for college”
3. “Mom always gets the kids”
4. “Child support will take care of us”
5. “My spouse charged up the credit cards- they are not my debts”
6. “I’ll always get spousal support”
7. “We have small kids, so Mom gets the house”
8. “I earned the pension so it is mine”
9. “The courts will take care of me”
10. “I’ll get half of everything”
11. “We have no fault divorce in California so it must be easy”

Divorce and Taxes: How they can affect your financial future

taxes, divorce financial analyst

Taxes are guaranteed to be a complication of every divorce financial settlement. Misunderstanding the tax code, even worse completely ignoring it, can have devastating effects on your financial future.

The errors get more costly and more common when estates and incomes get larger and people start getting creative. Negotiating a creative and mutually beneficial divorce financial settlement can be complicated when you have significant assets and income. Make sure you and your attorney have the help of a financial expert skilled and experienced in navigating the tax codes of divorce. Here are some common errors.


Failure to consider the value of dependency exemptions and filing status for income taxes. High earners are often phased out of using dependency exemptions, failure to negotiate the use post divorce could waste tax dollars.


Child Support

Not understanding the difference between child support and spousal support for tax purposes. Spousal support is taxable to the recipient, tax deductible for the payer.


Spousal Support

Structuring future changes in spousal support in close proximity to an event or mile-stone related to your children. This is also known as the Child Contingency rule and could cause tax deductible spousal support payments to be re-classified as non-deductible child support.


Attorney Fees

Failure to deduct attorney fees related to spousal support dispute as a miscellaneous itemized deduction. Yes your attorney fees are deductible to the extent they were incurred in the process of seeking tax advice or spousal support. You will need to ask your lawyer for an itemized break out of the litgiation costs. This can be incredibly valuable in protracted, expensive litigation.



Running afoul of Section 1041 of the internal revenue code. Section 1041 is the IRS code that allows spouses, married or divorcing, to transfer assets to one another without tax consequence. There are however rules to follow like how ling you have to complete a transaction.


Incorrect Assumptions

Assuming your CPA understands the tax code related to divorce. They can certainly look things up but it is a bad idea to assume your CPA understands the tax intricacies of divorce. The last time I spoke to a California Society of Certified Public Accountants group there were 200+ CPA’s in the room and 200+ questions after the presentation.



wellspring divorce advisors

Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.

Contact us to find out how we can help you through this process.