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
Divorce Costs how much?
/in Divorce Financial Planning, General, Lists Worth Knowing /by Justin ReckersIt depends on the situation; for example, if you have substantial or complicated assets your divorce cost may be higher. If you own a small business and take liberties with deducting your personal expenses as business expenses on your taxes your divorce cost will be higher. If you or your spouse have significant separate property claims your divorce cost will be higher. If you cannot have productive and respectful discussions with your spouse your divorce cost will be higher. In our experience the most expensive divorces are fought by two parties who HATE each other for one reason or another. Sadly the legal system is structured in a way leaving these two hateful individuals more angry at the end of the process than they were at the outset. It also depends on the attorney’s hourly rate and if he or she is inclined to encourage a settlement. Hiring the most expensive attorney in town known for being a shark will increase you divorce cost.
Wellspring Divorce Advisors coaches clients to think of their potential divorce cost as a continuum from highest to lowest rather than absolute dollar terms. Click here for a brief overview of your main options from proceeding or call us for an overview and consultation to help you choose. Our experience has shown the engagement with Wellspring Divorce Advisors will reduce your overall cost significantly.
Ranked below are your process options ranked highest to lowest in cost. We have seen litigation cases cost millions of dollars in fees and mediation cases with equivalent amounts of assets done for $15,000.
Caveat: A failed mediation can easily land you in a litigation model and cost even more. Make sure you understand mediation before opting in. The model is often misunderstood and full of less than reputable professionals.
Temporary orders for money in divorce
/in California Divorce Dictionary, Divorce Financial Planning, General /by Justin ReckersTemporary orders are usually issued regarding child custody, child support, spousal support and use or possession of assets. They cover the time period between the time that the divorce petition is filed and the time that the judgement of divorce is issued. Orders of any type are legal matters requiring the attention of legal counsel. Wellspring Divorce Advisors requires all of our clients consult with legal counsel to make sure they understand their legal rights and obligations.
Divorce is not a fast process. It is a legal, emotional and financial process often lasting years from the date a petition for dissolution is filed. Because of the often long periods of time passing between petition and judgment the court is often asked to make temporary orders on certain pieces of the case. Temporary Orders are important from a financial perspective because they are designed to protect the parties from risks that appear during pending dissolution proceedings. Risks might include a full time mother and homemaker being cut off from family bank accounts and by extension unable to pay bills. They may be entered for the sole purpose of providing clarity and guidelines to parents as to their obligations to support minor children. There may also be reasons to make orders for a party to continue supporting the costs of a marital asset in order to protect credit scores. Temporary orders could also be used in situations where extensive financial data gathering is under way and the court simply lacks complete information to make longer term decisions.
Following are some examples of temporary orders related to finances we have seen in our practice. We have provided links to California self help websites where possible.
Am I divorced or married this tax year? What is my tax filing status in year of divorce?
/in Divorce Financial Planning /by Justin ReckersYou 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?
/in Divorce Financial Planning, General, Lists Worth Knowing /by Justin ReckersJust 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
/in Divorce Financial Planning, General, Lists Worth Knowing /by Justin ReckersHere 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:
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.