Divorce Newsletters

Question: Does a Career Have Value?

A few states place a value on degrees such as the medical degree, the dental degree, or the law degree. In states that don’t value degrees we can look at the value of employment in a different way.

Social Security payments and divorce

If a couple has been married for 10 years or longer and they divorce, the Social Security Spousal Benefit provision applies. The lower-earning spouse is entitled to the greater of his or her own benefit or half of the ex-spouse’s benefit, whichever is greater, providing certain provisions are met

Four exceptions to the recapture or front-loading of maintenance

The tax Reform Act of 1984 enacted rules designed to prevent excess front-loading of maintenance payments. The purpose of this is to prevent the parties in a divorce from disguising a lump-sum settlement as alimony, which has tax benefits. Therefore if alimony is reduced dramatically or eliminated within the first 3 years it may be recharacterized and any tax benefit recaptured. Recapture under §71(f) can occur only in the third post-separation year.

Convert Property Settlement Notes into Deductible Maintenance Payments

Typically the transfer of property between parties, pursuant to a divorce, is not a taxable event. A cash settlement from one party to the other is not counted as income to the receiver, nor is it deductible to the payor. But there are situations in which structuring a settlement as maintenance can be beneficial to both parties. This arises when one party is a high-earner and the other is not

Warning! Don’t violate the Child Contingency Rule!

When deciding the amount and length of alimony payments, it is easy to run afoul of the Child Contingency Rule. Careful planning will ensure that your client doesn’t end up with an unintended tax obligation.

If any amount of alimony specified in the divorce decree is reduced (a) upon the happening of any contingency related to the child or (b) at a time that can be clearly associated with a contingency related to the child, then the amount of the reduction will be treated as child support, rather than alimony, from the start. (IRS Code Sec. 71(c)(2). Reg. §1.71-1T(c))

When the wife should get the house

There are cases when the wife should keep the house, even when doing so will create an unequal settlement. Let's look at Bill and Barbara (an actual case taken from records in a Colorado courthouse).

Bill and Barbara are 45 and 49, respectively, and have been married 18 years. They have one son. Bill earns net $3,675 per month minus child support payments of $413 and maintenance payments of $500 per month. His living expenses are $1,900 per month. Barbara earns net $980 per month plus $413 child support and $500 maintenance. Her living expenses with the son are $2,630 per month, which creates a negative cash flow of $812 per month.