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NJ Alimony Reform Bill Signed Into Law by Governor Christie

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Major changes are here for those currently going through a divorce. On September 10, 2014 Governor Christie signed the NJ Alimony Reform Bill, bill A845, into law.

What does the new law accomplish?

• For marriages less than 20 years, the length of alimony payments cannot exceed the length of the marriage unless a judge determines that there are “exceptional circumstances”.

• Judges would be able to end alimony payments if the recipient cohabits with a partner, even if they don’t get married.

• Judges would have the authority to modify alimony payments if the payer has been unemployed for more than 90 days.

• The term “permanent alimony” would be replaced with the language “open duration alimony”.

While the new law applies primarily to future divorces, it does allow for a “rebuttable presumption” that alimony payments will end once the ex-spouse making the payments reaches the full retirement age for Social Security.

Jeff Urbach, Partner at Urbach and Avraham, CPAs spearheads our litigation support department which specializes in matrimonial accounting. Jeff and his team of valuation analysts and fraud examiners guide couples and their attorneys through the myriad of financial and tax issues of divorce. Please call our office if you or someone you know is going through a divorce to see how we can assist and what effect the new law could have on your situation.

NJ Employers-Reduce Your Unemployment Tax Rates-August Deadline

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Did you check your NJ SUI rates?
In July all New Jersey employers received a Notice of Employer Contribution Rates. This is not a bill, but rather a summary of the manner

in which the NJ Department of Labor calculates your employer contribution rate for unemployment and  disability. This form enables you

to determine whether a voluntary  contribution would save you money in the subsequent year.

Can I reduce the NJ SUI rate?
A voluntary contribution increases the reserve balance and may reduce your contribution rate. Each employer should calculate the amount

of the voluntary contribution required to reduce the rate. The required voluntary payment should be compared to the savings realized from a lower rate.

The unemployment expense is a substantial component of the labor cost of staffing agencies. You should give it careful attention. If you wish to make a

voluntary contribution to your reserve balance you have 30 days from the date of your notice to do so. We recommend that you verify all the NJ DOL

calculations including the amount of the employer contributions and the benefits charged to your account. Report any discrepancies to the NJ Dept. of Labor.

By making a voluntary payment, employers may reduce the NJ SUI rate for the coming year. Please be aware that this payment increases your reserve

balance and helps reduce the NJ SUI rate in future years as well.

Domestic Partners: Do it New Jersey’s way or NJ says, “No Way”

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The Tax Court ruled against a plaintiff that claimed she was a domestic partner of the decedents and exempt from Inheritance Tax as a Class A beneficiary. The Story:
Claudette Lugano and Armin Lovi lived together from at least 2003 until his death in 2011. They had filed a Declaration of Domestic Partnership with the Federal Reserve Bank (FRB) but not an Affidavit of Domestic Partnership with any local registrar as required by NJ law per the provisions of the Domestic Partnership Act.
Because they had filed with the FRB, she was entitled to benefits under their retirement plan. However, NJ refused to treat her as a Class A beneficiary and to exempt her from NJ Inheritance Tax.

Bottom line; She’s a domestic partner as far as the Federal Reserve Bank is concerned but not for NJ purposes.

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Creative Advanced Divorce Tax Tip – Monetizing NOLs

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All family law attorneys understand the basics of income taxation as it relates to a marital dissolution: Alimony is taxable to the recipient and deductible by the payor and child support is not taxable.

In complex cases with closely held businesses, it’s important the attorney (or an expert) review not only the business tax returns, but, the personal income tax returns as well.

If one spouse owns all or part of a pass-through entity such as a Subchapter S or Partnership, there may be hidden assets not usually found on the marital balance sheet. Those assets are called Net Operating Losses (NOLs) carry-forwards.

Taxpayers can carry back these losses two years (and get refunds) and/or elect to carry them forward against future income. (NOLs can be carried forward twenty years.)

Well, guess what? When assets are split, the NOLs travel with the business owner. And, assuming its material, they have a value which needs to be monetized. Why does it have value? Because it will save the business owner spouse $ X amount of taxes over the next twenty (or less).

A very, very simple example. The couple divorces and a $1,000,000 NOL travels with the husband. (No you can’t split the NOL) The non-titled spouse’s lawyer never thought to monetize the NOL (or even the expert CPA, who is a generalist without matrimonial litigation experience).

Two years after the divorce the company turns around and the owner spouse has income of $200,000. Pick your bracket, whether it’s 28% or 35% or 40% (I rounded.). The NOL was could be worth somewhere between $56,000 and $80,000. Three years after the divorce, the owner spouse has income of $200,000. Another $56,000 to $80,000. You get the picture. What if all the NOL is used? That can be a savings of possibly as much $400,000.

Failure to monetize this asset and award the non-titled spouse an off-set, can be the basis of a malpractice suit!

New Options for Foreign Bank Account Owners

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What is the Offshore Voluntary Disclosure Program?
Since 2009, the IRS has announced various initiatives for taxpayers with unreported foreign assets. The Offshore Voluntary Disclosure Program (OVDP) requires filing 8 years amended tax returns and 8 years of Foreign Bank Account Reports (FBAR). In addition to paying 8 years of taxes, taxpayers must pay a 20% “accuracy” penalty on the tax plus interest. Taxpayers must also pay a 27 ½ % “FBAR-related” penalty on the highest balance of their foreign assets in the 8 year period (includes investments other than bank accounts).

What are the Changes?
On June 18, 2014 the IRS announced major changes to the OVDP which results in three possible “routes”: First, U.S. residents who did not report foreign income or assets but who certify that their non-compliance was not “willful”, do not need to enter the OVDP, but are now able to address the issue by filing only 3 years amended returns and 6 years of FBARs. No income tax penalty and only a 5% “FBAR-related” penalty are due.

Second, those who cannot certify that their non-compliance was not “willful” can still join the OVDP. The June 2014 changes create a third category of those who enter the program after it becomes public that their foreign bank is under investigation by the IRS or Dept. of Justice. For these taxpayers, the June 2014 changes increase the 27 ½ % penalty to 50% of the highest balance (of the taxpayer’s foreign assets during the preceding 8 years). This 50% penalty can be avoided only by completing the detailed preclearance filing procedures before August 3, 2014.
For those who can’t certify non-willful non-compliance, the OVDP is the only way to cap their civil tax exposure and to avoid criminal prosecution and possible jail time.

What are the Risks?
For those who choose to certify that their non-compliance was not “willful”, be aware that there is NO protection against criminal prosecution if the IRS finds the Taxpayer’s certification of non-willful conduct not to be true. Furthermore, the taxpayer will then be considered ineligible to participate in the OVDP.

What Should I Do Now?
Taxpayers need to ask themselves some hard questions in order to determine if they are eligible to claim that their non-compliance was “non-willful”. Non-willful conduct is defined by the IRS as conduct that is due to negligence, inadvertence or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

Time is Running Out
The 2014 OVDP does not have a final end date. However, the IRS has reserved the right to end the program at any time. We work with several law firms who specialize in this area. Together with your legal counsel we can help you evaluate the most suitable alternative.