DIVORCE FORUM

Tax Tips for Newly Married Couples

November 30, 2020 by Pamela Avraham

Checklist of tax and financial items for newly married couples:

Withholding – Newly-wed couples should consider changing their withholding. They should give their employers a new Form W-4, Employee’s Withholding Allowance. If both spouses work, they may move into a higher tax bracket or be affected by the Additional Medicare Tax.

They can use the IRS withholding estimator on www.irs.gov to help complete a new Form W-4.

Name and Address Change – When a name changes through marriage, it is important to report that change to the Social Security Administration. The name on your tax return must match what is on file at the SSA. To update information, taxpayers should file Form SS-5, Application for a Social Security Card, available at www.ssa.gov . If marriage includes a change of address, one should inform the IRS by sending Form 8822, Change of Address, available at www.irs.gov.

Filing Status – Married couples can file their federal income taxes jointly or separately each year. Usually, married filing joint is more beneficial, however couples should calculate the tax both ways to see which works best. If a couple is married as of Dec. 31, they are married for the whole year for tax purposes.

Prenuptial Planning – Part of the 2017 massive tax bill was the elimination of taxable and deductible alimony—which was in the tax code since the 1940s! As a result, prenuptials were turned on their heads unless they permitted a change for tax law changes. It is wise today for the pre-nuptial agreement to allow for changes in the tax treatment of alimony. Attorneys and their clients may consider wording which triggers changes automatically in the event of substantive changes in the tax treatment of alimony. Finally, not all states with an income tax follow the federal law. State tax law needs to be considered also. Litigation Support Partner, Jeff Urbach, works closely with divorce attorneys who can assist you with pre-nuptial agreements.

Marriage after Divorce? If a couple divorces and doesn’t change their wills, NJ statute dictates the outcome. Divorce revokes any dispositions of property made between former spouses prior to divorce. Will provisions leaving property to former spouse have no effect and property passes to next beneficiary named in will. After divorce, and especially before remarriage, one should consult with an elder law attorney. We work closely with many competent estate attorneys whom we can recommend.

Retirement Accounts – If a former spouse was named as the beneficiary of a qualified retirement plan, this will remain intact despite a divorce. After divorce, and especially before remarriage, one should review the beneficiary designations of all retirement accounts.

Everyone’s tax and financial situation is different. Please contact a tax professional at Urbach & Avraham, CPAs about your tax options. Look before you leap!

Social Security Survivor Benefits

January 19, 2020 by Aryeh Levy

Various benefits are available under the Social Security Laws to the survivors of a deceased worker who, at death, had enough credits and was fully insured.

At what age can a widow or widower collect? Widow’s or widower’s benefits, albeit reduced, are available when the surviving spouse reaches age 60, provided the widow or widower has not remarried before age 60. If the surviving spouse is disabled, benefits are available at age 50. If a widow or widower is receiving benefits based on the Social Security earnings of his or her late spouse, that widow or widower may, at a later date, switch to his or her own retirement benefit as early as age 62. This would make sense if the widow or widower own retirement benefit was of a greater amount than the survivor’s benefit.

Are survivor benefits available to divorced spouses? Survivor benefits are also available to divorced spouses, following a marriage to the now deceased worker that had lasted at least 10 years. Remarriage may disqualify the widow or widower from survivor benefits under certain circumstances. The amount of the benefit is pegged to the deceased worker’s “primary insurance amount” (PIA) rather than the widow’s or widower’s. The PIA is the benefit a person would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age.

Do the minor children of a deceased employee and dependent parents have benefits? Survivor benefits are also available to minor children of the deceased worker if they are in elementary or high school, but not college. Survivor benefits may be available to elderly (age 62 or older), dependent parents of a deceased worker if they do not have meaningful Social Security Benefits of their own. A family maximum benefit generally applies.

Surviving spouses, children and parents are entitled to various substantial benefits depending upon the specific circumstances. Urbach & Avraham, CPAs’ partner, Aryeh Levy, specializes in maximization of one’s Social Security benefits. Please contact us for a consultation regarding your situation.

Tax Planning for Divorce

July 31, 2019 by Jeffrey Urbach

If you are getting a divorce, taxes are probably not highest on your list of concerns. Still, you should consider a number of tax-related issues.

Property Settlements

Dividing property in connection with a divorce generally has no immediate consequences for either spouse. However, if the spouse who receives property in the divorce settlement later sells it, there may be a gain to report for tax purposes. So, potential taxes should be a consideration in deciding which spouse will receive which property.

Note that a spouse who receives property in a divorce figures any gain on a subsequent sale of the property using the transferring spouse’s basis (e.g., cost), not the property’s value when it was received.

For example: Michelle receives 10 acres of unimproved land in her divorce settlement. Her ex-husband bought the land for $25,000. It’s now worth $100,000. If Michelle sells the land for $100,000, she will have to report a taxable gain of $75,000 (the difference between the $100,000 selling price and the $25,000 cost basis).

Personal Residence

If a divorcing couple sells their home while they are still married, they are entitled to exclude up to $500,000 of gain from their taxable income if otherwise eligible for the exclusion. If the ownership of the home is simply transferred to one spouse as part of the divorce settlement, there is no taxable gain or loss at the time of transfer. However, should that spouse later sell the house while he or she is unmarried, only a $250,000 exclusion would be available.

Retirement Benefits

A divorce settlement often determines how retirement plan benefits will be divided. However, an employer may distribute retirement plan benefits to a former spouse only after receiving a court-issued document that meets the requirements for a qualified domestic relations order (QDRO). The benefits are taxable to the former spouse who receives them pursuant to a QDRO.

Dependency Exemptions

The Tax Cuts and Jobs Act of 2017 suspended the deduction for dependency exemptions for 2018 through 2025. But after 2025, the deduction will apply (unless additional changes are made). While the spouse who has legal custody of a child is generally entitled to claim the dependency exemption, this tax advantage is negotiable and can change from year to year. The custodial spouse can waive his or her right to the exemption, allowing the noncustodial spouse to claim it.

Does it still matter which spouse qualifies for the dependency exemption? Although the deduction for the dependency exemption is suspended through 2025, there are still benefits to the spouse qualifying for the child’s dependency exemption. Certain tax credits are available such as the child tax credit, (see below) child care credit and tuition credit generally to the spouse entitled to the exemption. Also, many states have a deduction for dependents.

Other Tax Benefits

Having a child qualify as a dependent may impact other tax benefits. For example, there is a potential child tax credit of up to $2,000 annually for each qualifying dependent child under age 17.

Alimony vs. Child Support

For 2018, payments that qualify as alimony under the tax law are deductible by the paying spouse and are considered taxable income to the recipient spouse. Child support payments, on the other hand, are not deductible by the paying spouse and are not included in the recipient spouse’s income. The IRS characterizes payments that are linked to an event or date relating to a child — such as high school graduation or a 21st birthday — as child support rather than alimony.

Note that the tax treatment of alimony will be different for taxpayers who divorce after 2018. Under the Tax Cuts and Jobs Act of 2017, no deduction is available for alimony payments made under post-2018 divorce or separation agreements and recipients are not required to include the payments in income.

These are just some of the tax planning issues that could be important in a divorce situation. Be sure to consult us to discuss how these general rules pertain to your personal situation.

Connecticut Rules Against Double Dip in Determining Alimony

July 29, 2019 by Jeffrey Urbach

The “Anti-Steneken” Decision

On May 21, 2019 The Appellate Court of Connecticut ruled against the “double dip” in the case of PENNY OUDHEUSDEN v. PETER OUDHEUSDEN. The decision takes the opposite position of the New Jersey Appellate Court in 2004 in Steneken v. Steneken, 367 N.J. Super. 427 (App. Div. 2004) which decided the “double dip” was permissible.

So, what is the “double dip”? According to NJ attorneys Charles F. Vuotto and Lisa Steinman:

The “double-dip” refers to the double counting of a marital asset, once in the property division and again in the alimony award. More specifically, where a court uses a business owner’s “excess earnings” to value the interest in the business and also fixes support on that spouse’s total income (inclusive of the “excess earnings” used to value the business), a “double-dip” occurs. The tacit acceptance (by some) of a rule against the “double-dip” served to ameliorate the harsh result of distributing undiscounted business values while also fixing alimony on the same income stream used to value a business. However, the recent decision of Steneken, has submerged the availability of a rule against the “double-dip”.

Could this impact NJ divorce law? As of this writing we don’t know if the decision will be appealed to the Connecticut Supreme Court. As forensic accountants and non-attorneys, we don’t know if New Jersey attorneys, using an out of state case, can try and overturn Steneken – something that would require a New Jersey Supreme Court Decision presumably on a new matter. That effort would take years and thousands of dollars in legal and expert fees. For the right case with enough dollars at stake it may make sense.

If you would like a copy of the PENNY OUDHEUSDEN v. PETER OUDHEUSDEN decision email Jeffrey D. Urbach, partner at jdu1@ua-cpas.com. Jeff has been providing Court related litigation support services for over thirty years. He is a NJ Roster Rule 1:40 Mediator and is trained in Collaborative Law. Jeff is a CPA, ABV (Accredited in Business Valuations by the AICPA) and a CVA (Certified Valuation Analyst by the NACVA) among other advanced designations.

Urbach Teaching Divorce Taxation Webinar

July 24, 2019 by Pamela Avraham

Back by popular demand, Jeff Urbach, partner, a long time NACVA (National Association of Certified Valuators and Analysts) Instructor and Course Developer, will be teaching Divorce Taxation Including the Impact of the 2017 TCJA (Tax Cut and Jobs Act) for the third time in 2019. The course is Day 5 of a Five-Day Matrimonial Litigation Series of Webinars given by NACVA.

What will the course cover?

Impact of TCJA
Taxation of Alimony and Equitable Distribution
Marital Residence
QDROs
Marital Tax Fraud
Tax Filing Status
Other Related Topics

Jeff authored this popular course and first taught it in Ft. Lauderdale in December 2018. Since then, he led a Webinar in March 2019 and presented the class live at the NACVA/CTI 2019 Annual Consultants Conference in Salt Lake City in June 2019.

When?

The webinar is on Friday, August 9, 2019 at 1:00 PM EST is open to anyone through registration on the NACVA (www.nacva.com ) website. It will also be presented live again in Ft. Lauderdale in December 2019.

Who can benefit?

Attorneys and financial experts involved with the complex area of divorce taxation will find this program helpful either as a refresher class for experienced practitioners or an introduction for those new to the field.