Tax planning when a client separates from or divorces a spouse

Article Abstract:

Taxpayers separating or divorcing should carefully structure alimony and child support payments, property transfers, and the divorce decree in order to minimize their tax consequences. Structuring must include careful consideration of the tax consequences of all agreements to avoid unexpected liabilities. Alimony payments are deductible by the payor and are taxable to the payee provided they are made in cash under the direction of a divorce decree. Alimony payments do not include the transfer of services, debts, or annuities. Spouses must be legally separated and not living together at the time of the payments. The payor must have no liability for payments after the death of the payee. Some indirect payments to the payee can also be considered deductible alimony for the payor, including life insurance payments, one-half of the mortgage payments, and direct payments to third parties.

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Divorce involves many income and estate tax areas

Article Abstract:

Accountants who act as consultants to divorcing clients need to be knowledgeable about the tax consequences of marital separation. Payments that qualify as alimony must be included in the payee spouse's gross income but deductible when calculating the payor spouse's adjusted gross income. Child support payments, on the other hand, are not considered part of the payee's income nor are they deductible on the part of the payor. Property transfers between husband and wife do not result in the recognition of gain or loss even if the transaction occurs during marriage or upon divorce. Estate and gift planning should also consider the consequences of divorce. For instance, a spouse may still be entitled to alimony even after the death of the obligated party. Other considerations that need to be addressed are professional fees, community property and pre-nuptial agreements.

Divorce settlements, Divorced people

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Tax planning for divorce covers residence sales, dependents, and payments to ex-spouse

Article Abstract:

Divorce or marital separation requires tax planning decisions including: payment of alimony; child support; and property transferal. In determining gross income, alimony is deductible by the person paying it and is included in the gross income of the recipient. Children who receive half their support from parents who are divorced, legally separated, or living apart may be claimed as a dependent by the parent who has custody for the majority of the year. There is no gain or loss recognized in transfers of property from one spouse to another incident to a divorce. Legal expenses for a divorce are deductible if they are expenses for the production or collection of income; for managing, preserving or maintaining income producing property; or connected with tax determination, collection, or refund.

Collective settlements

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