Archive for the 'Divorce' Category

Taxes and Divorce

Tuesday, September 24th, 2013

Divorce Choice: Filing Jointly Versus Filing Separately

A couple married on the last day of a calendar year may file jointly even if permanently separated in anticipation of a divorce. Most middle-income divorcing couples find it advantageous to file jointly, and they can file jointly if they are married as of midnight on the last day of the tax year, Dec. 31. For example, Rufus and Rhonda separate in the spring, decide to divorce in the summer, and set to working on the property settlement in the fall, but they are still legally married on the last day of the year. Rufus and Rhonda couple may:

> file jointly (called “married filing jointly”);

> file married as separate people (called “married filing separately”); or

> under certain circumstances, file as single (when they are “deemed unmarried” or “head of household”).

Even if the divorce was finalized between Jan. 1 and April 15, they are still married when it comes to filing the previous year’s taxes. If, however, the divorce became official in December, they cannot file as married even if they were for most of the year.

A married couple is liable for taxes for the years they were married, and the IRS audits the tax returns of formerly married spouses. A former spouse is not liable for current taxes, just the taxes of the years when he or she was married. If a deficiency is found, the IRS can - and does - pursue either or both spouses for the back taxes and any penalties.

Despite their marital strife, however, most couples file jointly because it results in a lower total tax bill than any of the other options. (”Married filing separately” is the most expensive way for a couple to file). If they jointly, however, both of them are responsible for the taxes due. Each spouse is responsible for the entire debt because married couples have joint and several liabilities, which means they share the responsibility.

Other Tax Considerations

While joint or separate returns are important tax decisions that every divorcing couple makes in the last year of a marriage, divorcing couples make other tax decisions, and when they negotiate and honor their agreements in good faith, they can save themselves money and aggravation.

Wealthy couples may do an extensive analysis that considers the incomes and deductions of both spouses, the number of dependents, tax credits, applicable tax rates and contributions already paid to avoid penalties.

The I.R.S. considers spousal support — alimony — as income shifting. It is deductible to the payor and taxable to the payee. Sometimes for tax reasons, spouses decide to make the payments nondeductible to the payor and tax free to the recipient. On the other hand, child support is not deductible to the person who pays it, nor is it taxable to the person who receives it.

Couples must decide which spouse takes the dependency exemption, the child-care credit, and medical deductions for a dependent child. 

In property settlements, transfers between spouses are gifts and are not taxable. However, in order to pay a settlement, sometimes couples must disturb assets in a way that creates tax consequences. For example, taxes may result when a party must withdraw funds from a restricted account, such as a pension fund. Sometimes couples do “horse trading” to reduce the impact of taxes on the settlement. For example, the sale of assets received in a settlement, such as a house, may create a capital gains liability; or when both parties make an in-kind distribution of property, such as set-off and trades; or when the parties take future income from a pension to be received later.
Couples can shelter a primary residence from capital gains of up to $500,000, but the sale of other real estate may result in taxable events.

The distribution of any ERISA-qualifed pension, profit-sharing or bonus plan may have adverse tax consequences because under the I.R.S. Code and ERISA these benefits are not assignable, and can only be transferred via a QDRO.

First Comes Love, Then Marriage, Then the Long Struggle

Monday, August 12th, 2013

Romance is fleeting, says University of California- Riverside psychology professor Sonja Lyubomirsky, even among those who have found love. Professor Lyubomirsky believes couples enjoy a two-year “passion bump” after getting hitched, after which their love converts into a more compassionate, familial one. Chalk it up to “hedonic adaptation,” as she calls it; the human tendency to become “habituated or inured to most life changes.”

“Studies show that in long-term relationships, women are more likely than men to lose interest in sex, and to lose it sooner,” Lyubomirsky writes. “Why? Because women’s idea of passionate sex depends far more centrally on novelty than does men’s.” In a way, that finding conforms to some old clichés—that men are down for sex under any circumstances, and women need a little more attention to get heated. But it upends another assumption that women are interested in settling down with one partner, while men would prefer to sleep around.

New relationships “are endlessly surprising,” Lyubomirsky notes; monogamous love appears to bore men and women alike. But couples that decide to commit for the long haul can renew the spark (for brief periods, at least) by reconfiguring their relationships.

Couples experience a happiness bump when they commit to marriage, and another bump 18 to 20 years down the road, a phenomenon Lyubomirsky attributes to grown children “leaving the nest.”  The happiness of long-term couples who don’t get hitched or don’t have kids isn’t investigated here, but one study found that couples who make an effort to engage in new and “exciting” activities together—like a spontaneous ski trip—experience little bumps, too.

All of this speaks to a paradox about the American understanding of wedded bliss: The culture celebrates people who find life partners, support one another, share resources, and raise children in stable, predictable relationships. And yet we still expect life partners to experience a romantic, passionate love—and to keep sleeping with one another exclusively until they die. The big relationship milestones we see as signs of true love and commitment—meeting a partner, moving in, marrying, having kids—are actually institutionalized strategies for injecting change into our relationships. But they also further tether us to one partner who quickly becomes more like a sibling than a lover.

The ideal of a romantic marriage may be an innocuous social convention—at least trying to surprise a spouse throughout a lifetime is a not-totally-unattainable (and quite romantic!) notion. But the idea that passionate love ought to last a lifetime can be poisonous, too.

According to Lyubomirsky, “a series of studies at the University of Virginia and at Harvard showed that people experienced longer bursts of happiness when they were at the receiving end of an unexpected act of kindness and remained uncertain about where and why it had originated.” That’s the kind of surprise an abusive partner can provide—someone who could make you happy, or else miserable, every day of your life. Bursts might be overrated.

Too Easy to Divorce

Tuesday, June 4th, 2013

Almost six out of 10 people in Britain believe that there are not enough legal hurdles to deter couples from divorce, according to polling on attitudes to marriage and separation.

According to one source, of the 2,000 people polled, 57 per cent agreed or strongly agreed with the statement “it is too easy to divorce these days.” Women were slightly more inclined to agree with the statement than man – 59 percent versus 55 percent, and, significantly, most young people aged 18 to 24 also agreed. And while 58 percent of the sample that are currently married agreed with the statement, so too did 56 percent of those who are divorced themselves.

Two thirds of those polled thought that infidelity by one or other spouses is the main cause of relationship breakdown, ahead of money worries, children or housework.

Seven Things Not To Do in a Divorce

Thursday, May 23rd, 2013

Here are seven things not to do in a divorce:

1. Thinking that a mediator will protect your financial interests.

2. Hiring the “best” lawyer that money can buy.

3. Keeping joint credit cards and loans.

4. Insisting on hanging on to the family home.

5. Trying to maintain the exact same lifestyle.6. Having a weak property settlement agreement.

7. Failing to change your will and insurance policies.

Staying in Business

Wednesday, May 8th, 2013

About 3.7 million businesses in the United States are owned by husband and wife teams, according to the Bureau of the Census, so many of these businesses are going to be involved in divorce settlements at one time or another.

Here are a few considerations that a couple must make when end a marriage but a save the business they worked hard to build. The spouses need:

> Mutual respect earned through open communication, predictability and compassion.

> Professional, therapeutic help because the divorcing spouses cannot take time off to mourn the death of their marriage.

> A written agreement (if one isn’t in place already) that outlines how the business will be run, how each party will be compensated, how decisions will be made and what happens in certain circumstances like incapacitation.

> A good talk with employees, letting them know what is happening and reassuring them that business will continue.

Woman Often Lose Health Insurance in Divorce

Tuesday, April 9th, 2013

Divorce has a tremendous impact on women’s health. Every year, an estimated 115,000 women lose private health insurance in the months following divorce, and about 65,000 of them remain uninsured for the long-term, according to a study that appeared in the Journal of Health and Social Behavior.

Even two years following the breakup of a marriage, many women still have no or inadequate health insurance. The Journal of Health augments “…the body of evidence that the current healthcare and insurance system in the United States is inadequate for a population in which multiple family and job changes over the life course are not uncommon.

“As a result, life events such as job transitions, marital transitions, and the onset of health problems allow individuals to slip through the cracks.”

The authors looked at marital status and health insurance coverage over time among 1,442 women to examine how their health insurance changed after divorce.

Previous research has demonstrated that people often experience poorer health following divorce and that women are more likely than men to suffer a decline in economic status after divorce. The new study is one of the first to show the impact of marital breakups on health insurance coverage.

“Just over half of workers get employer-based coverage, and a lot of people access health insurance coverage through other people’s employer-based coverage,” says Bridget Lavelle, a co-author of the paper and doctoral candidate in public policy and sociology at the University of Michigan-Ann Arbor. “One in four women are insured through a family member’s health insurance coverage. It’s important for people to be aware that this is something that could be lost if a marriage dissolves.”

Some of the women who lose health insurance coverage following divorce are employed. But they may not have employer-based coverage or, prior to the divorce, they may have chosen to access their spouse’s plan rather than their own. “Women who are employed and are offered employment-based coverage have a higher rate of declining that coverage and accepting coverage through their husband’s policy,” Lavelle says. “They are expecting their husband’s coverage to be more comprehensive or be a better value.”

Prenuptial Agreements

Wednesday, March 27th, 2013

Most experts think prenuptial agreements are most common for second marriages; however, numbers show that a large number of people younger than 35 are getting prenuptial agreements.

Prenuptial Agreements describe the terms and conditions governing the division of property following a divorce.

Prenuptial agreements are most popular for the following age brackets among people 26 to 32, with 23 percent of the clients seeking prenuptial agreements.

Here is a breakdown by age of these seeking prenuptial agreements: 18-25, 11 percent; 26-32, 23 percent; 33-39, 21 percent; 40-46, 18 percent; 47-53, 14 percent; 54-60, 6 percent; 61-67, 2 percent
; and 68 and above, 1 percent.

The median age for a first marriage in the United States is 26. Most second marriages (i.e. where at least one of the spouses has been married before) occur after the age of 35.

Trends of Marriage, Divorce and Having Children

Thursday, March 14th, 2013

Over recent decades, the make-up of families has changed significantly in North America, Europe and the rest of the industrial world. The general trend is for people to marry, divorce and have children later than they did forty years ago. Here are some of the highlights of these trends:

Age of Marriage and Divorce: Between 1960 and 2000, the average age of marriage rose by four years for men and five years for women. The average age of first marriage was 30 for men and 28 for women in 2000, up from 26 and 23 respectively forty-years previous.

There have been fluctuations during these years, however. The average age for both genders dropped in the 1970s and 1980s but increased since. In 2000 the average age of a second marriage after a divorce was 45 for men and 42 for women; with the average age for those marrying for a second time after being widowed 61 and 55, respectively.

The older couples are when they marry the higher the age difference between them tends to be.

Average Length of a Marriage: The average length of a marriage that ends in divorce was between 11 and 12 years in 2004. In 1971 this was between 23 and 25 years, so it has roughly halved over this period.

Number of People Getting Married: The number of people getting married (whether in a relationship or not) is falling dramatically. It has fallen by a quarter over the last 15 years. About 15 percent of couples that live together are not married.

Having Children: Between 1971 and 2003 the average age for first time Mothers increased from 25 to 27, while the average age for first time Fathers increased from 29 to 33 with 40 percent of children currently born to parents not married and just over half of divorced couples are couples that have children.

Barely Half of U.S. Adults Are Married – A Record Low

Thursday, February 21st, 2013

According to the Pew Research Center, barely half of all adults in the United States—a record low—are currently married, and the median age at first marriage has never been higher for brides (26.5 years) and grooms (28.7). Based on an analysis of U.S. Census data, Pew said that in 1960, 72 percent of all adults over 18 were married; “today just 51 percent are,” and if this trend continues, “the share of adults who are currently married will drop to below half within a few years.” Meanwhile, other adult living arrangements—including cohabitation, single-person households and single parenthood—have increased in recent decades.

Moreover, the number of new marriages in the U.S. declined by 5 percent between 2009 and 2010, a sharp one-year drop that may or may not be related to the sour economy, according to the Pew Research.

The United States is by no means the only nation where marriage has been losing “market share” in the past fifty years. The same decline has been observed in most other advanced post-industrial societies, and these long-term declines appear unrelated to the business conditions because they persist through good and bad business cycles.

In the United States, the declines are most dramatic among young adults (although they have occurred in all age groups) Today, just 20% of adults ages 18 to 29 are married, compared with 59% in 1960. Over the course of the past 50 years, the median age at first marriage has risen by about six years for both men and women.

Divorce in the Golden Years

Monday, January 7th, 2013

With longer lifetimes come higher aspirations for life – and for marital happiness — in the Golden Years. Among the over-60 set, the incidence of divorce has increased sharply—by 50 percent in just the past 10 years. Because many Baby Boomers want more from life than just the status quo, gray divorce, as it is called, now leads more couples to divorce court than ever before. Because these couples have had decades to build financial and emotional lives together—children, grandchildren, retirement funds, real estate assets and shared debt—divorce in the Golden Years can be far more complicated than divorce for younger people.

Key factors of concern for divorcing couples over age 60 include:

Financial: Many couples divorcing after 60 face shared expenses that depend primarily on one or the other’s current or past income. It can be particularly challenging to divide up assets equitably or calculate maintenance when one spouse was a stay-at-home parent for decades supporting the wealth creation of the bread-winning spouse.

Health: Along with the dependent income, many couples divorcing later in life share healthcare coverage and costs. This can present unique challenges that the divorcing couple must address, particularly the wife who was a stay-at-home mother. At the age of 60, it is still a few years before she eligible for Medicare on her own.

Pensions and Debt: Social Security is just one piece of the retirement puzzle. Spouses have a claim to each other’s pensions, and dividing those funds and debts can be challenging. A financial planner who specializes in divorce and the division of assets is essential when the divorcing couple have significant retirement assets, including pension plans, 401ks, Social Security.

Pain and Suffering: Divorce is nearly universally difficult and painful, but a divorce in the sunset years may bring out other emotions. These divorces can be traumatic to grown children. Divorcing couples over 60 often feel ashamed or embarrassed. Lifelong friendships can be at risk, because divorce makes the so-called “division of friendship” very difficult.

Divorce is different in the Golden Years. Living as a single person can also be more expensive. Impending retirements, medical needs and benefits, substantially larger assets, and emotional challenges bring all manner of difficulties. Financial planners, therapists, accountants, and a good attorney can be invaluable in navigating the additional complexities of starting anew in the sunset years.