Am I divorced or married this tax year? What is my tax filing status in year of divorce?

You are considered divorced if you took status as a single individual before December 31st of a given tax year .  You determine your tax filing status based on your marital status on the last day of the tax year, which is December 31 for most individuals.  Sometimes it actually makes sense to postpone your date of status until January 1st of the following year if it saves tax dollars.  You must agree with your former spouse to postpone the date of status and file married jointly but it may be worth it to both of you to reduce your tax bill during the period to offset legal fees from the divorce. It pays to be negotiable on tax issues. Wellspring Divorce Advisors can help you work with your spouse to determine the most advantageous filing status for your family in the year of your divorce.

We are posting lots of tax related items to the blog in honor of our upcoming speaking engagement at the California Society of Certified Public Accountants Annual Tax and Accounting Institute in San Diego November 18th. We are honored and looking forward to speaking to hundreds of CPA’s from across Southern California and giving them an overview of the many traps and opportunities inherent in the tax code during divorces.

How does a payment qualify as spousal support or alimony?

Just because a payment is called “spousal support” or alimony does not mean that the IRS will view is that way.  The following requirements must be met for a payment to qualify as spousal support. We call them the eight D’s of alimony.

1) Dollars must be received by or on behalf of a spouse

2) Documented by a divorce or separation agreement

3) Designation of payments: cannot opt out of §71 or §215

4) Distance: couple cannot live in the same residence

5) Dependents cannot change alimony

6) Dual returns: separate tax returns must be filed

7) Dumping: front-loaded payments are not allowed and may subject the payor to alimony recapture

8) Death of the recipient must end payments

20 Questions to ask a Divorce Attorney before retaining them

Here are some examples of questions you should consider asking a divorce attorney before retaining them. They are listed, loosely, in order of importance. The questions are designed to help make sure you hire an attorney who:

  • spends the majority, if not all, of their time practicing family law
  • has the skills to settle your case outside of court if possible as this is always the preferred conclusion
  • recognizes the value of experts in finance and mental health
  • can provide you reassurance you will be fairly billed and paid attention to during the emotional process of divorce
  1. What percentage of your practice is divorce?
  2. What kind of trial experience have you had in divorce?
  3. What percentage of your cases settle outside of court?
  4. Are you a certified specialist in family law?
  5. How many divorces did you work on last year?
  6. Do you typically engage experts such as forensic accountants, certified divorce financial analysts, child custody experts and vocational evaluators?
  7. Do you use experts as trial consultants to help you prepare case theory on specific issues?
  8. Do you typically try to settle cases?
  9. Are you trained in mediation?
  10. Do you provide unbundled legal services?
  11. How do you bill?
  12. Can you estimate what your fees will be?
  13. Other than attorney fees, are there any costs that I will need to pay?
  14. How much do you think these costs will be?
  15. Will an assistant do the work or are you going to work on it yourself?
  16. How will I be charged for your assistant’s work?
  17. Who is the contact person in your office?
  18. What can I do to keep my fees down?
  19. How do temporary spousal support and child support work?
  20. How long will it take to finish the divorce process?

Wellspring Divorce Advisors advocates all clients have legal representation during divorce. A large percentage of Americans do divorce without legal assistance but we believe he/she who represent themselves have a fool for a client. Please get legal advice. If you cant afford it find an attorney who provides unbundled services so you can just pay as you go without a large retainer.

Can I deduct legal fees for divorce?

Maybe. It depends on the reason you incurred the fees.  You cannot deduct the basic legal fees for divorce or court filing costs.  However, you can deduct any fees including legal fees that were paid for tax advice related to the divorce or to help you get taxable alimony or spousal support. These legal fees for divorce are allowable only to the extent that their total in any one year exceeds two percent of adjusted gross income. Wellspring Divorce Advisors fees may also qualify under these rules. You should ask your attorney to generate detailed billing showing the portion of the bill related to deductible items.

Check out this article from Divorce Taxation expert Julian Block for more details.

Consult your tax preparer before taking any actions that may have tax consequences.


What is financial discovery during divorce?

Financial discovery is the fact finding/document gathering part of the divorce process.  Financial discovery can be time consuming and may be the most expensive part of a divorce process for a wealthy family. Financial discovery will most likely happen over time. The amount of time depends on whether or not the parties are being cooperative.  It is a process, not an event, and requires ongoing document requests until all necessary information is gathered.

For the most part, discovery takes place outside the courtroom, with parties exchanging written information and sitting through face-to-face questioning sessions (called “depositions”). However, if the parties can’t agree on what should be handed over in discovery, a judge may have to resolve the dispute.

The kind of information that a party can force someone else to reveal — is generally very broad, though there are some limits. A party may ask for facts about the case, for the identity of others who may know something about the case, for documents relating to the case, and for inspection of physical objects or property connected to the dispute. Discovery can be used to seek information not only from the other party, but also from people and businesses that aren’t involved in the legal proceedings.

There are four types of formal tools that are frequently used in financial discovery during divorce. They are:

  • In a deposition, one party or that party’s lawyer conducts face-to-face questioning of the other party or a witness to the dispute. The person being questioned (the “deponent”) must answer under oath, and the answers are recorded for later use at trial. If the deponent cannot testify at trial, the questions and answers might be read to the jury as evidence. If the deponent does testify and gives different answers at trial from those he gave during the deposition, the questions and answers can be used to show the jury that the witness changed his story.
  • Requests for production of evidence.In a request for production of evidence, one party asks the other for physical evidence related to the dispute. Requests for production are usually used to gather pertinent documents, such as contracts, employment files, billing records, or documents related to real estate. However, these requests can also be used to inspect physical objects or property — for example, in a dispute about whether a contractor properly repaired a homeowner’s roof, the contractor’s lawyer might ask to have a roofing expert inspect the work.
  • Interrogatories are written questions one party sends to the other to be answered under oath. The answers can be used at trial in the same way as deposition answers — to challenge a party who changes her story later.
  • Requests for admission.In a request for admission, one party asks the other party to admit, under oath, that certain facts are true or certain documents are genuine. These requests are generally used to save time and to narrow the issues that have to be proved at trial.

We work with our clients to identify and collect the financial data pertinent to the divorce. From the original data gathering we evaluate any key financial concerns related to divorce – such as income and deductions, living expenses, assets, and liabilities. This process will likely tip us to other information we will need to request.

Wellspring Advisors work with the attorney to compile complete and comprehensive document requests, interrogatories and depositions to insure no stone goes unturned and the right questions are asked to help level the playing field. Good financial discovery will give you the peace of mind that no assets were hidden. Knowledge is power in the financial negotiations of divorce and formal discovery may be the only way to gain the knowledge you need.