Your tax returns provide us with information about your income and the source of income, income producing assets, and your investments, as well as whether you over or under withhold taxes from your paycheck. This information enables us to provide better advice in regard to division of assets and payment of support. Review of your tax returns is an integral part of your family law case; the attorneys at Hess Family Law ask that you provide us with your past tax returns. How many years of returns will depend on the issues in your case, but almost always we want at a minimum the past three years.
We can obtain copies of tax returns through the court discovery process if you do not have them. Other ways of obtaining copies of your tax return may include asking your tax preparer to provide copies, or obtaining copies from the IRS. To obtain a copy of your previously filed and processed tax return with all attachments, including Form W-2, you should complete Form 4506, Request for Copy of Tax Return, along with a $50.00 fee for each tax return requested. You have to allow 75 calendar days for the IRS to process your request. Tax Returns are generally available for returns filed for the current and past six years. On jointly filed tax returns, either spouse may request a copy and only one signature is required.
Oftentimes we don’t want to wait 75 days for the tax return to arrive, and/or it is cost prohibitive to pay $50 per tax return. The solution may be to order a Tax Return Transcript instead of the actual Tax Return using Form 4506-T. You can request your tax return transcript online directly from the IRS rather than making a request by mail. For a short time the IRS allowed individuals to obtain immediate transcripts of prior tax returns, by online download. However, due to security measures the ability to download a copy of your tax transcript has been suspected. It should take between 5 and 10 days to receive your tax transcript through the mail. Click here to learn how to obtain your tax transcript.
When the rich and famous get divorced their divorce settlements usually involve millions. Slice.ca lists 20 of the costliest celebrity divorce settlements of all time. For example, according to The Guardian, media mogul Rupert Murdoch's divorce from his second wife Anna Torv cost him $1.7 billion. The Daily Mail reported that Mel Gibson’s wife and mother of their seven children received approximately $850 million as part of their divorce settlement. Wondering what other celebrities had to pay large settlements, click here.
Many of the celebrities cited in the article were married before they became rich and famous. Those that married after their financial success may have avoided some of the emotional and financial fallout of their divorce if they had entered into a Prenuptial Agreement prior to their marriage. It appears that all of these famous couples did enter into settlement agreements, enabling the couples to decide on the terms of their marital dissolultion rather than letting a judge decide the terms of their marital dissolution during a public trial.
Attorney Geraldine Hess, and Hess Family Law can assist clients with the negotation and preparation of Prenuptial Agreements or Settlement Agreements.
Texting is a great way to stay in touch with your spouse, ex-spouse and/or your kids, especially if you are separated or divorced. In some cases, parties that are separated or divorced have difficulty communicating. Anger, stress, and frustration can cause parties to dread phone or face-to-face communication. By sending short text messages, parties can communicate efficiently without having to engage in lengthy conversations. However, you should be mindful that unlike phone conversations, there is a record of your text message conversations and just like emails; text messages can end up in the courtroom during your divorce or custody dispute.
How common is this? According to a survey by the American Association of Matrimonial Lawyers® (AAML), 94% of the respondents cited an overall rise in the use of text messages as evidence during a trial. In fact, text messages were the most common forms of evidence taken from smart phones holding the top spot at 62%, e-mails follow at 23%, phone numbers and call histories at 13%, with GPS and Internet search histories each sharing 1%. Why the increase in text messages as evidence in divorce and/or custody cases? Unlike phone conversations, text messages are a written record of a dialogue between spouses, ex-spouses or children. They can be used to highlight problems such as parenting issues, irresponsible behavior, and even contradict sworn testimony.
If text messages may end up in Court, what are your options? As I discussed in Technology Makes Communication Easier, if you cannot verbally communicate, it is better to use email and/or text messaging then to not communicate at all. But, never send an email or text message in the heat of an argument. And, never send an email or text message that you would not want a Judge to read. While technology has its drawbacks, if used properly, it can make managing two households a lot easier.
Although some believe that shared custody arrangements expose children to additional stress due to constantly moving from house to house, a Swedish study indicates that the potential stress from living in two homes is outweighed by the positive effects of close contact with both parents. Despite the hassles of living in two homes, most children in the survey stated that a close relationship with both their parents was most important.
The study, Fifty moves a year: is there an association between joint physical custody and psychosomatic problems in children? published in the Journal of Epidemiology and Community Health suggests that kids fare better when they spend equal living time with both parents. The study compared children in joint physical custody arrangements, with those living only or mostly with one parent and those living in nuclear families. Based on a national survey of nearly 150,000 Swedish children aged 12 and 15 years, the study found that children who live equally with both parents after a parental separation suffered from less psychosomatic problems such as sleep problems, difficulty concentrating, loss of appetite, headaches, stomachaches and feeling tense, sad or dizzy than those living mostly or only with one parent. However, children in joint custody arrangements still reported more psychosomatic problems than those in non-separated or divorced nuclear families.
For more information on Child Custody, please click here.
Divorce filings rise in the month of January because couples tend to wait until after the holidays to separate. James McLaren, past president of the American Academy of Matrimonial Lawyers commented that in the month of January “we see a significant increase in people seeking out divorce advice and, ultimately, filing. The number of filings is one-third more than normal.” Similar trends are seen in the U.K.: 1 in 5 couples plan to divorce after the holidays, according to a recent survey of 2,000 spouses by legal firm Irwin Mitchell. The survey also found that instructions to lawyers to file for divorce are also up 27% so far this month compared with an average month.
Many theorize that the rise in filings at the beginning of the year is due to couples not wanting to dampen the holidays with news of a divorce. Those hoping for an amicable resolution once the divorce proceedings are filed may consider whether their spouse will be so eager to settle if the holidays are marred by a separation and talk of divorce. Additionally, there may be concern that a disgruntled spouse could use the divorce as an excuse to spend more on gifts then he/she otherwise would have spent. While running up credit cards and draining bank accounts can happen at anytime of the year, a spouse may be less likely to do so after the holidays.
Waiting until after the craziness of the holidays has passed gives parties more time to plan and prepare. In order for an attorney to have a clear understanding of income, assets, and expenses parties will need to begin collecting financial documents. End of the year statements are an important piece to the financial picture. Many of these documents are not available until the end of December or the beginning of January.
If you are considering divorce, Hess Family Law can provide advice based on your particular situation and goals.
Source: Reuters, Considering divorce? Good reasons to wait for January, Geoff Williams, December 4, 2015
Marketwatch.com, Why January is a popular month to file for divorce, Quentin Fottrell, January 6, 2015
- Not have any minor children in common;
- Submit a written settlement agreement to the Court, signed by both parties that resolves all issues of support, and property;
- Neither party may seek to set aside the written settlement agreement before the divorce hearing and
- Both parties appear at the divorce hearing.
- A limited divorce can now be granted on the grounds of a separation. The separation no longer has to be voluntary on the part of both parties, and there no longer has to be no reasonable hope or expectation of a reconcilation.
- The residency requirement for divorce grounds occuring outside the State of Maryland have been reduced. A party may file for divorce after having resided in Maryland for at least 6 months before filing. The residency requirement used to be a year.
Nancy and Bill are getting divorced. They have no children but they do have a Golden Doodle, Alfie that they purchased together after they were married. Nancy and Bill think of Alfie as their child, and they both want Alfie to live with them. Nancy wonders if she can file a Motion for Custody of the family pet.
Under Maryland law, Nancy cannot file a Motion for Custody. Alfie is not considered by law to be a child, or child-like even though Nancy and Bill think of Alfie as their child. In Maryland, a pet is considered tangible personal property. If the pet was purchased during the marriage, using marital funds, as Alfie was, then the pet is marital personal property. Nancy and Bill must either reach an agreement regarding Alfie, or Alfie may be sold like all of the other personal property they own together.
Nancy Kay, in her article “ Who Keeps the Family Dog”, suggests 5 things divorcing spouses like Nancy and Bill should consider when deciding who shall keep the family pet:
1. Who has a flexible work schedule or access to a reliable person who can fill in for them to care properly for the pet while they are at work.
2. Who has the financial means to provide for the pet throughout the expected length of the pet's life span?
3. Who has the majority of parenting time with the children who are attached to the family pet?
4. Has either of you neglected the pet's basic needs or acted abusively toward the pet?
5. Who will have more space for the dog to exercise and play following divorce?
Some States are enacting legislation that allows judges to decide custody of the family pet using the “best interest” doctrine just as they do when deciding custody of children, or determining that the pet should go with the children. We will see what changes, if any, develop in Maryland over the next few years.
Are My Legal Fees Deductible?
Many clients wonder if the attorney fees they have incurred during their divorce are tax deductible. Generally, the IRS says no. According to Internal Revenue Code (IRC) § 262 (a), personal, living, or family expenses are not permissible deductions. Therefore, a spouse may not deduct attorney fees incurred in connection with a divorce or separation because these matters are considered to be personal. However, there are exceptions to this rule.
Legal fees in connection with advice regarding alimony qualify as a legitimate legal fee deduction. Why? IRC § 212(1) allows a deduction for expenses incurred for the production or collection of income. Therefore, those legal fees attributable to obtaining alimony or incurred to collect alimony arrears are deductible. However, attorney fees incurred by a spouse to defend an award or collection of alimony are not deductible.
Another legitimate deduction is for expenses related to tax advice. IRC § 212(3) allows deductions for all ordinary and necessary expenses paid or incurred during the taxable year in connection with the determination, collection, or refund of any tax. In the context of a divorce case, this means advice regarding transfer of property; dependency exemptions; characterization and treatment of alimony obligations; and income, estate, and gift tax consequences resulting from a trust to discharge an alimony obligation are permissible deductions to the taxpayer who incurs these expenses.
If you are planning to deduct some of your legal expenses, your attorney will need to determine what portion of their bill relates to deductible advice and provide an itemized bill. Otherwise, your legal fees will likely not be considered legitimate deductions by the IRS. Since tax laws continually change it is important to consult with your attorney and/or a tax professional for specific tax advice.
Your divorce proceedings have concluded and you have paid your final attorney fee bill. Wondering if any of those fees are deductible on your personal income tax return? The general rule is that a taxpayer may not deduct attorney fees incurred in connection with a divorce or separation because this matter is considered to be personal and the Internal Revenue Code does not permit the deduction of personal, living, or family expenses. I.R.C. § 262(a). However, there are exceptions to this rule that may allow you to deduct some of your legal expenses related to your divorce, so long as you plan to itemize your deductions and your total miscellaneous deductions exceed 2% of your adjusted gross income (AGI). If you do not itemize deductions or your deductions do not pass the 2% adjusted gross income test, then you cannot deduct these fees.
Alimony Related Legal Fees:
IRC §212(1) allows an individual to deduct ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income. A spouse seeking taxable income, such as alimony, may deduct a portion of their legal fees related to his/her alimony claim because alimony is includable in the recipient’s gross income. A spouse may also deduct legal fees and expenses associated with a modification of alimony or to collect alimony arrearages. Additionally, if a spouse seeking alimony incurs accounting fees relating to their claim for alimony those accountant fees may also be deductible. Fees incurred to hire a vocational expert, to the extent the fees relate to obtaining alimony, may also be deductible. In order to deduct legal fees relating to a claim for alimony, the alimony recipient should pay all deductible legal fees in one year.
It is notable that a party defending against an award or collection of alimony cannot deduct his or her legal fees, nor can either spouse deduct legal fees associated with the collection of child support.
Fees Related to Tax Advice:
IRC §212(3) allows an individual to deduct ordinary and necessary expenses paid or incurred during the taxable year in connection with the determination, collection, or refund of any tax. Some examples of advice that may be allocated to tax planning or production of income are:
- Tax advice concerning the rights to claim dependency exemptions;
- Characterization and treatment of alimony obligations;
- Costs of determining the adjusted basis of assets in the property settlement;
- Costs of obtaining advice regarding the tax consequences of divorce or separation instrument; or of gathering information for actual preparation of tax returns; and
- Costs of securing an interest in a qualified retirement plan (such as those paid to divide your and your former spouse’s defined contribution plans).
For legal fees incurred in connection with a divorce to be deductible, your attorney must determine what portion of the fee is allocable to tax advice as opposed to non-deductible advice or other services and render an itemized bill. According to IRS Revenue Ruling 72-245, the agency will accept a lawyer's allocation of his or her fee between tax and nontax matters where the attorney allocates primarily on the basis of the amount of time attributable to each, the customary charge in the locality for similar services and the results obtained in the divorce negotiations.
Note: This information is general in nature and should not be construed as tax advice. You should consult with your tax accountant
If you are separated or divorced there may be tax implications related to your new relationship status. At Hess Family Law we can work with your existing tax preparer, or we can refer you to and work together with a new tax preparer to assist with separate and divorce tax implications.
Efile.com suggests these tips for you to consider when filing your annual taxes.
Your marital status as of December 31st of each year controls your filing status for that year. If you were still married on December 31, 2014, and you do not have an Agreement that specifies how you will file, you have two options: file a joint return or file married filing separately. If you were divorced during 2014, you cannot file a joint return. If you do not have an Agreement that addresses who may file as Head of Household, you can file as Head of House of Household (and get the benefit of a bigger standard deduction and more advantageous tax brackets) if you had a dependent living with you for more than half the year and you paid for more than half of the upkeep for your home. Otherwise, you may need to file as a Single tax payer. Hess Family Law recommends you consult an accountant to determine the best way for you to file your taxes.
Who claims the kids? If you have an Agreement or Court order stating who claims the kids then the matter is resolved. If you do not have such a document and you are the custodial parent you may claim your children as dependents for tax purposes. The IRS considers you a custodial parent if your child lived with you for a longer period of time during the year than with your former spouse. Regardless of your custodial arrangement, you and your ex-spouse can agree who claims the children as dependents. In this instance the custodial parent must sign a waiver stating that he/she will not claim the deduction.