5 Tax-Tips for People Going Through or Recently Divorced

If you are going through a divorce, or finalized your divorce in 2012, please read these five tips to ensure you are maximizing your savings and avoiding potential penalties. Taxes and divorce are both stressful and confusing, so it is important that you read Publication 504: Divorced or Separated Individuals.

1.      Make sure you choose the proper tax filing status. The correct status is determined by your marital status on December 31, 2012. If you were divorced on or before December 31. 2012, you can file your taxes as “single”, or “head of household” if you have a child and qualify. Otherwise, you must filed either “married filing separately” or “married filing jointly”, depending on what you and your spouse have agreed. It is important that the two of you communicate about this issue. If you are represented by counsel, you should ask your attorney to confer with opposing counsel prior to filing.

IRS Pub.504 Tip: “If both you and your spouse have income, you should usually figure your tax on both a joint return and separate returns (using the filing status of married filing separately) to see which gives the two of you the lower combined tax.”

2.      Claim your child as an exemption if you are allowed. You may be entitled to reduce your taxes by claiming a dependency exemption for your child if you were divorced in 2012 or if you are filing married filing separately and you were designated as the custodial parent in your divorce judgment, written separation agreement or pendente lite court order.

If you were designated as the non-custodial parent, and lived separate and apart for the last six months of the year, you may still be entitled to claim the deduction if the custodial parent releases the exemption by executing Form 8332.

IRS Pub.504 Tip: “You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. For more information, see the instructions for the tax form you file (Form 1040, 1040A, or 1040EZ).”

3.      Do not deduct child support payments, it is not taxable. Unlike alimony, child support is not tax-deductible by the payor and not taxable to the payee. So, do not make the mistake of including child support on your federal income tax return.

4.      Alimony is taxable by the supported spouse and tax-deductible by the payor, so be sure to include it. To qualify as alimony, the payment must be made pursuant to a divorce judgment, separation agreement, or pendente lite order, the spouses do not file a joint return, if you are not divorced you must be living separate and apart when payments are made, and the obligation terminates upon death.

IRS Pub.504 Tip: “You must give the person who paid the alimony your social security number. If you do not, you may have to pay a $50 penalty.” Likewise, if you do not include your ex-spouse’s social security on your return, you may have to pay a $50 penalty and your deduction may be denied.

5.      You cannot deduct the attorney fees for the divorce. Although you cannot deduct the attorney fees you incurred for your divorce, you may be able to deduct legal fees incurred for tax advice, appraisers, and actuaries in connection with your divorce, as well as accounting services associated with determining your proper tax or to help you get alimony. Since fees that you pay may include deductible and non-deductible expenses, be sure to request an itemized invoice, showing the amount charged for each service.

IRS Pub.504 Tip: “You can claim deductible fees only if you itemize deductions on Schedule A (Form 1040). Claim them as miscellaneous itemized deductions subject to the 2%-of-adjusted-gross-income limit. For more information, see Publication 529, Miscellaneous Deductions.”

These five tips are just that, tips. They are not intended to be tax advice. Whenever negotiating a settlement agreement or going through a divorce, it is important to seek advice from a tax professional. Most attorneys are not tax attorneys and are only providing you advise based on the law, and are not providing you with tax advice. If you are planning on finalizing a divorce in 2013, you should understand how the recent changes to our tax laws might affect you. It is also wise to work with a financial planner, if you do not already have one, who can assist you in the event you stand to receive equitable distribution of assets or a lump sum of alimony to ensure longevity.

Please feel free to contact Hunnell Law directly to discuss your divorce or property settlement agreement. 

 "To ensure compliance with requirements imposed on us by the Internal Revenue Service under CIRCULAR 230, we are required to inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein."

 

Pre-Nope! NY Supreme Court Invalidates Pre-Nuptial Agreement.

Last month in what is being called an unprecedented decision, the New York Supreme Court invalidated an existing prenuptial agreement, in an unprecedented decision that is causing headaches for divorce lawyers across the country.

The Appellate Division of the New York Supreme Court found that the Plaintiff-Appellant, Elizabeth Cioffi-Petrakis had been  subject to duress and inequitable conduct leading up to her participation in a prenuptial agreement with her now ex-husband, Peter Petrakis. In the absence of a valid agreement, Cioffi-Petrakis may be entitled to as much as 50% of her husband’s wealth and property, including a real estate empire valued at over $20 million.

While prenuptial agreements are commonly viewed as being airtight and definitive, the court’s decision is likely to generate uncertainty for thousands of divorcees and their legal counsel.  That uncertainty is only exacerbated by the vague terms that, based on the court’s ruling, rendered the agreement fraudulent. Petrakis had proposed the agreement only four days before the couple’s wedding, leaving his fiancé little time to negotiate terms. In addition, Petrakis assured his wife-to-be that upon the birth of their first child, he would shred the document.

Though the couple produced two children over the course of their 12-year marriage, Petrakis made no attempt to destroy the document.

Additional rulings in cases such as these are sure to spring up over the next several years, as divorced New Yorkers test the court’s more nuanced interpretation of what qualifies an agreement as fraudulent.

Other states will inevitably face similar decisions, as more and more former spouses seek to invalidate prenuptial agreements.

Most states already have laws on the books requiring a waiting period in between the date of the prenuptial agreement and the wedding, and remaining states may evaluate the merits of a waiting period in the wake of this ruling.

Currently, in New Jersey, a prenuptial or antenuptial agreement will only be enforced if: 1) the parties are competent; 2) there is an absence of fraud, misrepresentation, duress, and overreaching; 3) there is full and complete financial disclosure, with a written list of assets and income attached to the agreement; 4) the agreement was entered into voluntarily; 5) each party must also have, or have access to, the advice of independent counsel; and 5) the agreement is not “unconscionable,” (though it does not necessarily have to be “fair and equitable”).

NJ Ranks last in Number of Divorces

According to the 2011 American Community Survey released last month by the Census Bureau, New Jersey ranks last among the states in the percentage of residents 18 and older who are divorced. Just 9 percent of New Jersey adults are divorced, compared with nearly 52 percent of whom are now married.

New Jersey Provides Service Members With Extra Protections Regarding Custody.

According to SenateNJ.com, on January 28, 2013, Legislation (S-1051/A-634) was signed into law by Governor Christie, which provides additional protections for parents who are U.S. Service Members. The law prohibits our courts from modifying or amending any child custody or parenting time order or judgment while the service member parent is deployed, unless it is in the best interest of the child. More, the law provides that whenever our courts are required to make a determination concerning child custody or parenting time, they will not consider the service member parent’s absence or potential absence away from the child due to deployment, as a factor when determining the best interest of their child. 

Can my teenaged child choose where she wants to live

In follow-up to my 1/22/13 Post:

The appellate division released another opinion on January 23, 2012, again reiterating the necessity of a plenary hearing.  In M.I. v. B.I., the trial court conducted an in camera interview of the parties’ fifteen (15) year old daughter, who the court found to be “very sophisticated” and who expressed a desire to live with her father, and indicated her concerns for her mother’s parenting style. The parties have two children. 

The trial court denied the father’s application for a transfer of custody, without holding a plenary hearing. The trial court expressed concerns about splitting up the two children.

The Appellate Division held, that the “views of Amy, then age fifteen, were entitled to significant, albeit not controlling, weight.” The Appellate Division was satisfied that the father had made a prima facie case of changed circumstances, “specifically the preferences of a “very sophisticated” fifteen-year-old girl who expressed a preference for living with one parent and concerns about the parenting style of her then parent of primary residence.” Since the Appellate Division did not find the record to contain sufficient factual support for the judge’s denial of the father’s application, the panel remanded the matter for further consideration, and a plenary if the issues remain contested.

Does a Teenaged Child Have the Right to Choose Where He Wants to Live?

Does my teenaged child have the right to choose where he wants to live?

A teenaged child’s preference to change residential custody is but one factor that a Court must consider when transferring custody to the non-custodial parent.

On January 17, 2013, the Appellate Division, in Atherholt v. Hunter, reiterated a well settled principal that New Jersey Courts are required to hold a plenary hearing (mini-trial) before changing custody and must analyze the factors set forth in N.J.S.A. 9:2-4, even when an older child expresses a desire to live with the other parent.

The case came to the Appellate Division when the mother, Mary Atherholt, appealed a Family Part Order that granted her ex-husband, Michael Hunter, residential custody of their fourteen (14) year old son M.H. after an interview with the child, but without a plenary hearing. The Family Part judge found several factors that justified granting the Father custody, including but not limited to: M.H.’s preference to live with his father, the higher quality of educational facilities accessible from the father’s residence, and the inherent value of a father-son relationship during adolescence, which M.H. was just beginning to enter at the time. This marked the first success after a string of failed efforts by the Father to attain residential custody of his son.  A motion filed earlier by the Father was denied without prejudice in a February 2010 Order, with the parties being ordered to engage in mediation. Upon failure of the mediation the Father filed another motion, which was denied in September 2010 by a different judge. At that time a CNA* report recommended that the Father enjoy increased parenting time with M.H., but with the Mother retaining primary residential custody.

After two in camera interviews, the judge concluded that a change of circumstances had taken place, based in large part on the child’s preferences, and granted the Father residential custody, provoking an appeal. The Family Part Order was reversed on the basis that the judge did not hold a plenary hearing when making this decision, to determine the best interests of the child, and that he did not consider each of the factors outlined in N.J.S.A. 9:2-4 (“safety, happiness, physical, mental and moral welfare.") that would culminate to provide a justification for a change in custody.

*The Custody Neutral Assessment Program (CNA) is one option to help resolve custody issues when the parties do not agree and when mediation has failed.  It involves a mental health professional meeting with the parties and advising the Court of the concerns and considerations.

To learn more about child custody, parenting time, visitation, transfer of custody, or removal law, please do not hesitate to contact Hunnell Law, LLC.