Massachusetts Appellate courts have been busy interpreting the recent changes in alimony law, but they’re not the only courts struggling with legal questions surrounding alimony.  The U.S. Tax Court is tasked with interpreting the treatment of alimony under the I.R.S. Code and this has led to some interesting decisions in 2015.  Yes, I just used “tax” and “interesting” in the same sentence, but trust me if you are paying or receiving alimony, or representing clients who are, you need to know about these decisions. David H. Goodman, CPA/ABV/CFF, CVA of Gosule, Butkus & Jesson, LLP has been kind enough to provide us with summaries of these recent cases: U.S. Tax Court Alimony Decisions: 5 Cases You Should Know Guest Post by David H. Goodman, CPA/ABV/CFF, CVA Below I have summarized five U.S. Tax Court cases in which the Court ruled against the taxpayer on issues involving deductible alimony. In each of these the taxpayer attempted to deduct a payment as alimony and...

Even if you can stay on an ex-spouse's health insurance ( which we cover in this previous post ), there are two potential costs of staying on an ex-spouse's insurance. The first is the actual cost of the plan. If the plan participant would qualify for a lower cost plan, for instance if the plan participant is single with no children, then the "additional cost" must be paid by either the plan participant or their ex-spouse. Usually the ex-spouse seeking this coverage will pay the "additional cost" but this must be defined in a court order or agreement. In addition, the IRS defines excludaible fringe benefit costs to include only costs for spouses and other dependents. Ex-spouse coverage is not excludible and is therefore a taxable benefit. Although often overlooked by employers, many employers have started to treat these ongoing benefits to ex-spouses as taxable income to the employee. For more information about the taxation of health insurance benefi...

As the income tax filing deadline approaches, we are all wondering how we can reduce our income tax bill and increase our refund.  Anyone who is considering divorce, going through a divorce, or has been divorced should consider how their divorce case could affect that tax bill. We previously posted a series on Divorce & Taxes including the following topics: Divorce and Taxes: Issue #1. Marital Status Divorce & Taxes - Issue #2. Child Support v. Alimony Divorce and Taxes: Issue #3. Child Dependency Exemptions. Divorce and Taxes: Issue #4. Property Transfers. Divorce and Taxes: Issue #5. Joint Tax Liability. Divorce and Taxes: Issue #6. Same Sex Marriages. Whenever any of these issues arise in a case, it is imperative that divorcing spouses and their counsel consider the tax consequences when negotiating a settlement. In a recent opinion, the Massachusetts SJC confirmed the importance of considering income tax consequences of divorce orders and specificall...

Guest Post Introduction: Jessie L. Foster, CFP®, CDFA™, MBA is a Collaborative Law Financial Professional who works with clients and their attorneys to fully understand the financial complexities surrounding divorce. She offers comprehensive analysis of the short-term and long-term impacts of proposed divorce settlements that may impact clients and their families well beyond divorce. Ms. Foster serves as Chair of the Massachusetts Collaborative Law Council (MCLC) , Members Meeting Committee and is a member of The International Academy of Collaborative Professionals, the Divorce Center and The Massachusetts Council of Family Mediation. What does a Collaborative Law Financial Neutral Do? By Jessie L. Foster, CFP®, CDFA™, MBA Financial issues in divorce are complex and the decisions a couple makes as part of the divorce process may be some of the most important fiscal decisions they will make in their lifetime. On the Collaborative Divorce Team the financial professional is ...

Yes. Here is the exact answer from the IRS FAQ website: Question: For head of household filing status, do you have to claim a child as a dependent to qualify?  Answer: In certain circumstances, you do not have to claim the child as a dependent to qualify for head of household filing status; for example, a custodial parent may be able to claim head of household filing status even if he or she released a claim to exemption for the child. This means that in a divorce or paternity agreement you should designate if one parent will still have the right to qualify for Head of Household, even if the other parent is being given the dependency exemption. For a further discussion on who gets the dependency exemptions in a divorce read our previous post: Child Tax Deductions: Who gets them in a Divorce?

On your Federal Income Tax Return you can claim an exemption for each qualifying child, which for the tax year 2011 will result in a $3,700 per dependent credit off of your taxable income.  Depending on your tax bracket this could save you as much as $1,295 in federal taxes. But if you are separated or divorced and filing separate federal income tax returns, who gets the exemption? First of all, you can't both take it.  Only one of the parents can use the exemption for each child on their return. If you both claim a child, the IRS will reject your return and send you a letter indicating that you must amend. So which one of the parents gets to use the exemption? Pursuant to IRS Publication 501 , the IRS considers a child of divorced or separated parents in most cases to be the qualifying child of the custodial parent only.  The IRS defines custodial parent as "the parent with whom the child lived for the greater number of nights during the year. The other parent...

Unfortunately, the current state of the law creates two classes of married citizens. Traditional opposite sex marriages are one class and same sex marriages are treated as second class by the limitations created by DOMA (the poorly named "Defense of Marriage Act"). DOMA prohibits the federal government from recognizing same-sex marriages. Although the current federal administration has indicated they will not defend DOMA in Court, it is still currently the law of the land. That means that many of the tax issues described in our last few blog posts do not apply in the same way to same-sex marriages. Issue #6. SAME SEX MARRIAGES: Below we have described the numerous ways that DOMA changes how same-sex marriages are treated when it comes to taxes: MARTIAL STATUS: For Federal tax returns, same sex married couples cannot file under married status. Therefore, their tax status upon divorce does not change on their federal returns. ALIMONY: Because same-sex former spouses cann...

In any divorce where the parties own assets of value, there will likely be some transfer of assets between the parties as part of the divorce settlement. Assets that could be at issue range from tangible personal property (i.e. the pots and pans) to bank, investment and retirement accounts. In addition, the most valuable asset in many marriages is the marital home (and/or other real property). Although generally tax implications in spousal transfers are minimal there are some issues to look out for. Issue #4. PROPERTY TRANSFERS: Because some assets are post-tax (such as bank accounts) and some assets are pre-tax (such as retirement accounts or capital gains), it is important to understand the tax implications in dividing them. If you trade a pre-tax asset for a post-tax asset of equal value without taking into account the resulting tax liability then you've lost the value of the tax liability. Therefore it is important to understand which assets have tax liability associated...

Obviously not every case has alimony and child support issues, but those divorce clients that do should be aware of some basic income tax issues related to support. Issue #2. CHILD SUPPORT V. ALIMONY: Child Support is the amount of money paid by the non-custodial parent to the custodial parent for the support of the children. In Massachusetts, Child Support is calculated using a formula called the Massachusetts Child Support Guidelines. Child Support is NOT taxable income to the recipient, and is NOT tax deductible to the payor. Alimony, also called spousal support, is paid by the wage-earning spouse (the spouse who has traditionally earned the majority of the income during the marriage) to the non-wage-earning spouse to allow the non-wage-earning spouse to continue to live in the lifestyle to which he or she has become accustomed during the marriage assuming their is enough income to do so. Alimony is income to the recipient and should be included as taxable income on the Recipien...

There are two certainties in life: Death and Taxes. We've already written about how divorce and estate planning are interrelated, but what about divorce and taxes? In all cases a divorce will affect some part of your tax return. In most cases there will be numerous changes in your income tax liability after your divorce and you should give consideration to what changes will take place because this could be a factor in determining the best divorce settlement for you. In some cases these changes may be complicated enough that your attorney should involve an accountant or certified financial planner to help analyze the different options. Our next five blog posts will explore the various issues raised by the interrelation of divorce and taxes so that you are at least aware of the issues to be on the lookout for. Issue #1. MARITAL STATUS: The most obvious way that a divorce will affect your taxes is by changing your marital status. This is a change to your federal income ta...