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.
Thanksgiving Tips for the Newly Separated or Divorced
Thanksgiving is this week and you may be wondering how you will survive the holiday this year. Whether you are separated or divorced, the start of the holiday season can be overwhelming, but it does not have to be. In a recent Huffington Post article Denise L. Denois lists ten tips to enjoy the holidays post-divorce. These tips apply whether you are newly separated or divorced.
1. Don't compete with your ex.
2. Keep busy.
3. Think about your kids, and don't manipulate or guilt them into spending all of their time with you to the exclusion of your ex.
4. Be magnanimous.
5. Invent a new tradition.
6. Clean house. Cleaning can be cathartic, clear out the old and make way for the new.
7. Find acceptance.
8. Be creative and resist the urge to overspend during the holiday season.
9. Focus on others.
10. Focus on yourself.
For more information on coping with the holidays and ways to implement the tips above, as well as tips for adult children of divorce, read Hess Family Law Blog: Surviving the Holidays Part 2:: Thanksgiving.
Hess Family Law is proud to be one of the sponsors of the 2013 Preparing For Success Fall Forum.
The “Preparing for Success” Fall Forum is an all-day conference, designed to provide useful and practical information for high school girls headed for college and the workplace. The Montgomery County Women’s Bar Foundation designed, planned and has offered this program every November, beginning in 2001. The program offers workshops that address interviewing, resume writing, career choices, getting into college, and a section on helping young girls stay safe while in high school and also on the internet. The entire day is free of charge. Co-sponsors include the Montgomery County Commission for Women, the J. Franklyn Bourne Association, the Maryland Hispanic Bar Association, Montgomery College and Montgomery County Public Schools.
You can register here for this free program.
Julie and Pete are in their mid 50’s and have decided to divorce. Both are worried about the affect a divorce will have on their retirement. Julie fears that she may not be able to afford to retire and Pete has concerns that he may have to push retirement back several years. Both wonder if there is a way to divide their retirement assets with a minimal amount of financial damage. Marilyn Timbers, in her article 4 Divorce Mistakes That Can Derail Retirement, raises four issues that may affect Julie’s and Pete’s retirement after divorce.
Should Julie give up her interest in Pete’s retirement in exchange for keeping the marital home?
Often times a spouse believes it is better to keep the house rather than receive a portion of their spouse’s retirement. However, this is not always true. Julie needs to consider the cost of maintaining the home as well as its future value. If Pete’s retirement plan is well diversified, Julie may be better off receiving the retirement income. It is also important for Julie to consider the tax consequences of receiving either asset before signing an agreement.
Are all retirement accounts the same? How are the accounts impacted by taxes?
Pete believes that it is fair for each of them to keep their own IRA accounts because they have the same value. Pete has not considered the tax implications of this arrangement. While both accounts may have the same value, his IRA is a pre-tax account and Julie has a Roth IRA, a post-tax account. If they were to each keep their own account, the division would not be equal due to tax consequences at the time of withdrawal; Pete pays taxes at withdrawal and Julie does not. It is important for Julie and Pete to consider the value as well as the tax status of all of their retirement accounts.
If Julie needs cash should she take a withdrawal simultaneously with the rollover of retirement funds from Pete to her, or should she do it later?
Julie rolls her share of Pete’s 401(k) into her IRA immediately after divorce even though she needs cash to pay for divorce related expenses. If Julie withdraws funds from her retirement prior to age 59 ½ there is a 10 percent tax penalty; however since her share of Pete’s 401(k) is allocated to her under a Qualified Domestic Relations Order (QDRO), she is entitled to a one time opportunity to withdraw money from Pete’s 401(k) without owing the penalty. Once the rollover from Pete’s 401(k) into Julie’s IRA occurs, she will be subject to the ten percent penalty should she need to withdraw the funds early.
Should Julie decide to take all of Pete’s 401(k) in cash, rather than rolling over the funds into her own retirement account?
Although Julie has the ability to withdraw funds from her portion of Pete’s 401(k) without incurring the ten percent penalty, she should not withdraw more than she needs. While immediate cash will help Julie now, she may be sacrificing her retirement down the road. Julie needs to assess her current and future cash flow and determine how much she will need for retirement before she determines how much, if any, of Pete’s 401(k) she should withdraw rather than rollover into her IRA.
It is important for Julie and Pete to discuss these issues with both their legal and financial advisors before entering into an agreement with regard to dividing retirement assets.
Fall is in the air. Temperatures are dropping, leaves are changing and pumpkins are in abundance. For kids and many adults the best part of Fall is Halloween.
As a divorced or separated parent you may not get to be with your children on Halloween day or night. But that doens't mean you can't celebrate the holiday and the season. Now days there are so many events leading up to Halloween, and even afterward, that you can still celebrate and enjoy the festivities with your child. And, don't forget about fun at home seasonal activities.