Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
You’re relaxing in your favorite chair and watching your favorite TV program. You worked hard today, have not been unfaithful or abusive, and surprise — you now have no house, can’t see your children, your bank account has been seized, and you have to pay your spouse’s legal fees, psychologist visits, and you are threatened with jail if you resist. According to AARP, 25 percent of divorced men, and 14 percent of divorced women, ‘never saw it coming’.
I am not an attorney, nor an expert in divorce. The following are several things I’ve pickup from clients’ questions and advisors over the years.
One important thing to do is to get your finances in order as you see your attorney. These include:
- Contacts: Make a list of your doctors, family members, and your attorney, accountant, stockbroker and other professionals.
- Tax Returns: Get copies of at least your two prior tax returns, and any audit reports. If your spouse was self-employed, this may show various business assets.
- Copies of Insurance Policies: Life, disability, auto, business: Get copies of your insurance policies, and you ex’s if you are the beneficiary, as well as the last premium bills, company, and policy numbers.
- Wills, Trusts, Marriage Certificate and Contracts: Your attorney may have some of theses.
- Investments and Bank Accounts: Get copies of your monthly bank statements. Your broker may be able to help you with IRAs, and other joint and separate investment accounts.
- Real Estate, Mortgage, and Credit Card Information: Get copies of the deed, mortgages, property tax statements, insurance coverage, and statements, as well as any loans, leases, credit card statements. Find out what type of account you have: joint, individual, etc. Contact the three credit reporting bureaus and get a copy of your credit report.
- Birth Certificates: You and the children.
- Safe Deposit Box: Contents
- Inventory of Home and Personal Assets: Photos or video tapes may help here.
- Get Some Cash: It may take time to get temporary support.
On the financial side, before signing, keep the following in mind (This is only a partial list):
- Medical Insurance: Who is paying? How much? Which doctors — ‘in network?” Does only a base amount need to be paid by your spouse, and the balance split? Get a complete physical for you and the children before finalizing.
- Exemption for Children: Who is to get the tax exemption? Or will you alternate yearly?
- Child Support: This is not deductible if you are paying, nor is it taxable to the parent receiving the support payment. Until what age — through college, graduate school?
- Alimony: This is deductible by the one paying and taxable income to the one receiving.
- Certified Information Statement: This needs to be done just prior to the final signing by an experienced professional who has a good understanding of the tax laws and current court cases.
- If you are divorced by December 31, you cannot file a joint tax return. You can file either as a single or head of household. If filing jointly will save you tax dollars, postpone the final divorce decree until after year end.
- You and your ex cannot claim the dependency exemption for the same child. The IRS will match this information. The exemption just may be denied to both of you, or they may make a determination, and assess penalties and interest to your ex.
- Even if stated that your spouse is responsible for any back taxes, if they are not paid, the IRS will be calling you. (The same may be true for your joint credit cards and mortgage.)
- If you are separated, but not divorced, you may have the option of filing jointly or separately (possibly as head of household). Filing separately usually gives Uncle Sam more money. Have your tax preparer figure your taxes both ways.
- If the noncustodial parent can claim the child, you may still be able to claim the lower tax rates of ‘head of household.’ A noncustodial parent is not entitled to claim the ‘head of household’ status, nor the earned income credit, nor the child and dependent care credit, but is entitled to the ‘child tax credit.’
- If your total medical expenses exceed the statutory 7.5 percent of your adjusted gross income, you can deduct these expenses for a non-custodial child or custodial child, whether or not you are entitled to declare the dependency exemption for that child.
- Child Care: Only the custodial parent is entitled to claim the child and dependent care credit, even if the custodial parent is not entitled to claim a dependency exemption for the child, if part of the parent’s waiver.
- Alimony: Deductible by the payer and taxable to the recipient: Payments for the education of an ex-spouse to enter the workforce. In general, payments contingent on an event in your ex’s life, like remarriage, are considered alimony.
- Non-Deductible by the Payer and Non-Taxable to the Recipient: Payments contingent on an event in a child’s life, like reaching 18, are considered to be child support.
As you can see, the taxes are complicated, so make sure you and your attorney consult with you tax preparer, before, during, and after the divorce.
Here’s the ‘Twelve Days of Christmas Divorce’:
On the 12th day of Christmas, my true love sent to me:
- Twelve demands for relief,
- Eleven prayers for property,
- Ten thousand for alimony,
- Nine hundred for child support,
- Eight pages of interrogatories,
- Seven requests for documents,
- Six requests for admissions,
- Five thousand for attorneys,
- Four requests to enjoin,
- Three pre-trial motions,
- Two process servers,
- And a complaint for a final divorce!
Have a good week.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.