One of your goals (whether undergoing divorce or not) should be to build your estate to achieve financial security. This process quite simply involves increasing your income and budgeting that into cash which must be used to acquire income producing assets. While in the process of divorce it may be even more imperative to utilize the services of competent professionals to assist you in reaching financial security and managing your financial affairs. In addition to a skilled and experienced Certified Public Accountant, you may want to consult with a Financial Advisor and/or a Bookkeeper. Continue reading
If you are in a situation where divorce appears to be the only option, you should probably retain the services of a competent experienced family law attorney as early as possible to help guide you through the process and protect your interests. Just the same there are technically five distinct options for obtaining a divorce that you should at least be aware of before you have, in fact, retained an attorney. The following is a very brief summary of these options: Continue reading
Federal tax law provides two more methods (see previous post re Treatment of Community Income Where Spouses Live Apart) in which a spouse may escape the responsibility to report one-half of all community property income on a separately filed return. Neither of these provisions require that the spouses live apart.
The first is provided by IRC § 66(b). Continue reading
During a divorce situation the responsibility to report and pay income taxes on all sources of community property can prove to be a heavy financial burden (see previous post re Reporting Income and Deductions on Separate Returns). Fortunately, the IRS offers several sources of relief from this burden. The first type of relief is offered by IRC § 66(a) which provides that the Community Property Laws with respect to earned income may be disregarded in certain situations if: Continue reading
If married spouses elect to file separate returns (see previous post re Filing Status While in Process of Divorce), each spouse should report only their own income, exemptions, deductions, and credits on their individual return (Reg. 1.66-1). This reporting may be easier said than done, however. It may not always be clear who owns what investment and its income stream and who paid and is eligible for which deductions. The situation may be even more complicated if the spouses live in a community property state such as California. Continue reading
Another issue individuals contemplating divorce must resolve is who gets to claim the Dependency Exemptions for the children. In general a taxpayer may claim a Dependency Exemption for each child who is under age 19, or under age 24 if a full-time student, and lived with the taxpayer for more than ½ of the year, except for temporary absences including time away at school. The child must not provide more than ½ of their own support, excluding scholarships received. Continue reading
Right after concern for the welfare of the children, the biggest concern during and after the divorce process generally relates to the fear of the unknown financial impact. During the divorce process, costs generally rise dramatically as the spouses often incur new outlays for legal and forensic representation, emotional counseling services, and separate housing. This stress is very negative and often results in much more acrimony than would otherwise be present. One spouse generally is in the position of earning more and he or she is forced to “support” the other party, at first on a temporary basis and later on a permanent basis. Continue reading