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.
There is no question that going through a divorce is difficult. Not only do you have financial and emotional issues to deal with but the social pressures and anxiety of telling friends and family can feel overwhelming. Many times people want to forget what is happening in their own lives and are all too happy to focus on someone else’s life. So, what should you do you when you are asked intrusive, meddling, upsetting, or offensive questions? Or better yet, what shouldn’t you do?
Hess Family Law wishes everyone a happy and healthy New Year!
Dealing with family law issues such as divorce, child support, and custody can be overwhelming. We at Hess Family Law are available to discuss your options and help determine your rights and how best to protect your interests. Click to read Hess Family Law Blog Guidelines to Managing your Divorce, and Divorce Tips to Keep you on the Right Track.
Hess Family Law wishes everyone a very happy holiday season! For information on coping with the holidays during or after divorce read Hess Family Law Blog Surviving the Holidays Part 3: Christmas, Chanukah, and More.
The holidays can be a difficult time for separated or divorced families. Regular schedules that provide stability and consistency are often suspended during the holidays. Children can become anxious worrying about which parent they will be with and when. They might become fearful of hurting one parent’s feelings if they spend too much time with the other parent or have too much fun with them. Favorite traditions will feel different, and your children may be feeling loss and sadness. You likely have your own feelings of stress, anger, fear and loss that can make it even more difficult for you and your children to maintain joy during the holidays. Click here to read therapist Alyson Jones 15 Tips for Managing a Divorce Over Christmas, and click here to read Hess Family Law holiday blog post from 12/2012.
Although this is a difficult time for your family, here at Hess Family Law we hope that after acknowledging the loss and changes of divorce, that you can begin to make wonderful new traditions and memories with your family and find people and things that you are grateful for this holiday season.
Hess Family Law wins Court of Appeals Case: Separation Agreements are Not Voidable
A few months prior to Husband and Wife marrying in September 2003, Wife contacted an attorney to begin the process for Wife, a Canadian citizen, to obtain permanent resident status in the United States. Due to marital difficulties, in 2005 and 2008, Husband and Wife executed Marital Settlement Agreements. Wife used the same attorney to assist her with the drafting of the Agreements that was used by the parties in the Immigration matters. Husband chose not to obtain legal counsel regarding the Separation Agreement even though both Agreements advised Husband that Wife’s attorney was not representing Husband’s interests. Husband and Wife negotiated the terms of their Agreements on their own and Wife advised the attorney on what to draft.
You filed your Complaint for Limited or Absolute Divorce and received a Writ of Summons from the Court. Now what do you do?
Typically an opposing party is served by delivering to them a copy of the summons, complaint, and all other papers filed with it. Your spouse can be served at home, work, or anywhere they happen to be. You can request that the sheriff’s department serve the papers for a fee, hire a private process server, or you can have anyone over the age of 18 serve the papers. If your spouse isn't home but resides with a family member the papers can be left with a person who lives with your spouse as long as that person is over the age of 18. Another method you may use is mailing the papers certified mail requesting: "Restricted Delivery”. In order for service to be complete, your spouse must sign the receipt (green card) which is then returned to the sender. In either scenario, you cannot be the one to serve your spouse. Once service has been made, an affidavit of service must be filed with the Court. If you do not file an affidavit of service, the Court will not know that your spouse has been notified of the proceedings. If your spouse fails to respond to your Complaint, and you have not advised the Court that you obtained service, you will not be able to proceed. See Maryland Rule 2-121(a)
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
After months, or in some cases years, of negotiations and perhaps litigation, your divorce is final. You are exhausted emotionally and financially and are ready to put your divorce behind you. However, before you forget about the past there are important financial and legal documents that you need to review to make sure they reflect your current marital status. For example, unless you have agreed to maintain your ex-spouse as the beneficiary of your life insurance policy, you will want to update your beneficiary designation.
Five Things You Need to Know About Divorce and Applying for College Financial Aid
If you are separated or divorced and have children preparing to go or already in college it is important for you to understand how divorce may affect your child’s college financial aid. Lynn O’Shaughnessy wrote an article for CBS Money Watch, listing five things you need to know about divorce and financial aid.
Where the child primarily resides matters:
The parent with whom the child resides primarily should be the one to fill out the Free Application for Federal Student Aid (FAFSA), which is required when requesting college loans. The non-custodial parent’s income is irrelevant for financial aid purposes. If the child lives with both parents an equal amount of time, then the parent that has spent the most money on the child’s care would be the one to fill out the FAFSA.
Residency is determined based upon the date the FAFSA application is submitted:
If the FAFSA application is submitted on March 1, 2014 then you must look at the 12-month period between March 1, 2013 and March 1, 2014 to determine where the child primarily resided.
It does not matter who claims the child as a tax exemption or who pays child support:
The only time child support might become a factor is if the child spends equal time with both parents and the amount of child support paid is more than the other parent spends on the child’s care.
Remarriage can affect financial aid eligibility:
If the custodial parent remarries, the new spouse’s income and assets must be listed on the FAFSA. This could potential jeopardize a child’s eligibility for financial aid.
There are different rules for the CSS/Financial Aid PROFILE:
The PROFILE aid form treats divorce differently than the FAFSA. There are approximately 250 private schools that use the PROFILE aid form and typically they want financial information from both parents. How the information is utilized varies from school to school.