CHAPTER 11 DIVORCE & TAX: NO SHELTER FOR THE WEARY

1. CHAPTER 11DIVORCE & TAX: NO SHELTER FOR THE WEARY

2. Chapter 11 Divorce & Tax: No Shelter for the Weary • Tax Ramifications of Divorce and Separation • What the IRS does • Susan Learns a Tax Tip • Tax ramifications of alimony v. child support • How to Research a Tax Tip • Internal Revenue Code • Section 71(b)

3. Chapter 11 Divorce & Tax: No Shelter for the Weary • The Six IRS Must Haves • Payment must be in cash • Cash must be paid directly to the payee • Payments are allowable as a deduction if permitted under a written and signed agreement • Payments considered • Tax deductible if not living to together • Non-Tax deductible if living together • Differentiate between support payments and property settlement • Payments cannot be disguised as child support

4. Chapter 11 Divorce & Tax: No Shelter for the Weary • Attempting to Disguise Child Support • Child support is not tax deductible • Alimony and spousal support is tax deductible • Reduction in alimony • The Recapture Rule • Tax Consequences of Transferring Property • Transferring property • How capital gains tax works

5. Chapter 11 Divorce & Tax: No Shelter for the Weary • Transferring Property to a Third Party • Beneficiary spouse • The IRS’s three requirements: • Transfer is made pursuant to a divorce or separation agreement • Transfer is made pursuant to a written request of the beneficiary spouse • Transferring spouse receives a written acceptance of the property transfer after the property has been transferred

6. Chapter 11 Divorce & Tax: No Shelter for the Weary • Retirement Plans and Property Settlements • Some types of retirement plans • Pensions • Individual retirement plans • Profit sharing • Keogh plans • 401K plans • 403B plans • Understanding Qualified Domestic Relations Orders • Purpose of a QDRO

7. Chapter 11 Divorce & Tax: No Shelter for the Weary • Steps to Take When Seeking Retirement Benefits for an Alternate Payee • Get the plan’s instructions before having the Judge sign the order • Preparing a Qualified Domestic Relations Order • Review the example (Exhibit 13:1)

8. Chapter 11 Divorce & Tax: No Shelter for the Weary • Which Spouse is taking the Dependency Exemptions? • Dependent exemption • Who is entitled to receive the benefit? • What needs to be signed if the other parent is permitted to take the deduction? • IRS Form 8332 • Are Legal Fees Tax Deductible? • Legal fees in connection with a divorce or separation are not deductible • Tax advice is tax deductible

9. Chapter 11 Divorce & Tax: No Shelter for the Weary • Who’s Head of the Household Now? • Head of Household • Person who pays for over half of the costs for maintaining a household without children • Three step test if children are involved: • Claiming spouse must provide over half the costs of maintaining the household • The house must have been the children’s main residence during the tax year • The former spouse could not have lived in the household during the last six months of the tax year

10. Chapter 11 Divorce & Tax: No Shelter for the Weary • Tax Ramifications of Selling the Marital Home • Capital gains taxes • One Option is Filing Separately • Married, filing separately • Higher tax bracket • Review Tax Clauses (Exhibit 13:2) • Does Declaring Bankruptcy End a Support Obligation?

11. Chapter 11 Divorce & Tax: No Shelter for the Weary • Ethics Alert: • Do e-mails automatically convey client status?