Divorce Property Settlement Tax Pitfalls – Hiding won’t Help. Divorce and Taxes Part III

Divorce property settlement tax pitfalls can be an unpleasant post-divorce surprise. Hiding, unfortunately, won’t make the problem go away.

Marital property transfers to one spouse or another during or related to a divorce generally don’t bring tax consequences. However, like most generalities, there are always exceptions.

In Part I of this series, I talked about your divorce dream team. I suggested that, along with an experienced divorce lawyer like those at Hightower Reff law, a tax attorney or a CPA may be a valuable part of your divorce team. Possible divorce property settlement tax pitfalls are yet another reason to consider enlisting a tax pro during your divorce.

Divorce Property Settlement Tax Pitfall 1 – Selling the House 

You must report gain or loss from the sale of jointly owned property on your taxes in the tax year of the sale. Your individual state’s law determines what your share of that gain or loss amounts to. This is another area that can get sticky, and where a tax attorney or CPA can be helpful.

If you sell your primary home when you’re no longer married, watch out. Your tax basis on the capital gain is different than it would have been when you were married. Married couples filing jointly can exclude up to $500,000 of gain from the sale, while single tax filers can only exclude half that amount, at $250,000.

When the Primary Residence Exclusion Doesn’t Count

One of the most common divorce property settlement tax pitfalls happens when a divorcing couple keeps the family home in both of their names after the divorce. It’s often so one spouse can live there with the children until they’re grown.

The spouse who no longer has the house as their primary residence often ends up with an expensive tax consequence when it’s sold years later.

 

IRS Publication 523, Selling Your Home, is a helpful read that includes special rules you should know if you’re separated or divorced and selling a main home.

The non-recognition rule – isn’t always recognized

Usually you don’t pay taxes on division of marital assets because of divorce. That’s because the “non recognition rule” doesn’t recognize a gain or loss on property transfer between spouses or former spouses (so long as the transfer between former spouses is because of divorce.)

However, there are some circumstances in which the IRS considers a property transfer as a gain by one spouse – which means it’s taxable.

 Non-taxable transfers

Some other things you may not think of that you can transfer without tax consequences during or incident to a divorce (under definition of IRS regulations):

  • Health savings account (HSA)
  • Archer medical savings account (MSA)
  • Individual retirement arrangement (IRA)   (stay tuned for more on this)

Next in the series

Next time in the final installment of Divorce and Taxes, we’ll have a look at key points to know about retirement account division roadblocks when it comes to your tax bill.

(If you missed Part I or Part II of the series, you can catch them here.)

This article should not be construed as legal advice. Situations are different and it’s impossible to provide legal advice for every situation without knowing the individual facts. 

Author, Hightower Reff  Partner Attorney Tracy Hightower, holds both a Juris Doctor and  a Master of Laws in Taxation. For more about Tracy, visit her profile page.

If you need help with an Omaha area divorce or other Omaha family law case, contact Hightower Reff Law today and come visit with one of the attorneys at the Omaha office

 

Divorce and Taxes Part II – Child Support, Alimony, and Taxes

The certainties of death and taxes are inescapable, as is the certainty that divorce will change your tax situation. If you’re getting divorced, you may need to think about child support, alimony, and taxes – along with other tax issues.

In this series we look at some of the key issues surrounding divorce and taxes, so you can gain the clarity you need to have informed conversations with your attorney and your CPA. That can be important to help them protect your interests.

Last time in the series, we discussed four things to consider when mediating or negotiating your divorce decree. When it comes to our topic for this installment – child support, alimony, and taxes – you may find some surprises.

Child support and taxes 

If you receive child support, you don’t have to report it as income.

If you pay child support, you don’t get to deduct it on your taxes… and you don’t get to claim the child on your taxes just because you pay support. The parent who gets to take the dependency exemption for the child depends upon your Divorce Decree, temporary order, and/or the tax code.

Alimony and taxes – a different animal

Alimony (spousal support) is altogether different than child support when it comes to tax rules. If you receive alimony, you have to report it on your taxes as income. If you pay alimony, your spousal support payments are tax deductible.

Getting slick with spousal support and taxes – a sticking point for the IRS

If your decree structures alimony payments to be high in the first couple of years and then drop off, the IRS may consider those payments to be a property settlement rather than alimony and you may not be able to deduct them.

Know your decree

Be mindful of child and spousal support tax implications when you’re negotiating or mediating your decree – including who will claim exemptions for the children.

 

A word about backsies

If you reach an agreement and a temporary order or final decree is entered, but your spouse changes their mind later, you may want to file your taxes before your spouse. That is unless you need them to sign IRS Form 8332 and they refuse. If that happens, talk to an experienced attorney about enforcement options as soon as you can.

If you don’t need your spouse to sign Form 8332, and they tell you they’re taking the dependency exemption when they aren’t entitled, you may come out ahead if you file first because the IRS will credit the first person who files and claims the exemption.

For more on filing child support and taxes and alimony and taxes, see IRS publication 504.

Next in the series

Next time in the series we look at things to think about when negotiating the property settlement agreement in your divorce.

 

This article should not be construed as legal advice. Situations are different and it’s impossible to provide legal advice for every situation without knowing the individual facts. 


Author, Hightower Reff  Partner Attorney Tracy Hightower, holds both a Juris Doctor and  a Master of Laws in Taxation. For more about Tracy, visit her profile page.

If you need help with an Omaha area divorce or other Omaha family law case, contact Hightower Reff Law today and come visit with one of the attorneys at the Omaha office. 

Changing Child Custody or Support Your Holiday Wish? 4 Things You Should Know (Infographic)

holiday-modification-mediumFrustrations over repeated problems can be a bigger deal during the holidays. That can be a pain, but it can also be a benefit in the long run because it can make clear to you things that need to change. Sometimes those things include child custody or child support orders that aren’t working for your family anymore. If changing child custody or support is your holiday wish, there are 4 things you should know:

 

In a Nebraska child support modification, if a parent is looking to reduce the child support they owe because their income has gone down, the court will look at what caused their income decrease. The court will also look at whether the parent caused it on purpose.

Unfitness not a necessity for changing child custody

You don’t have to prove that the other parent is unfit for the judge to grant a custody modification. Showing that changing child custody is in the child’s best interests may get the job done. For example, the court may find that changing child custody is in the child’s best interests if the parent with primary custody is no longer giving the child a stable living environment.

The court’s decision will turn on the very specific, individual facts of your case, and the needs of your children. Your attorney’s skill in clearly and effectively showing the court those things is critical.

Experienced legal support is essential

Choosing the right attorney for a Nebraska child custody modification or Nebraska child support modification is crucial. It’s also crucial to your peace of mind during what can be a long court proceeding. Having an attorney in your corner you are confident in, who gives you clear information and who is committed to your case is key.

Also remember that experience goes a long way. When you choose your attorney for your child custody modification case or child support modification case, look for a lawyer who works daily in this specialized area of the law.

Look also for a lawyer who’s familiar with the judges in your area, and how they may view the facts of your case. While no attorney has a crystal ball, or can guarantee the outcome of a case, familiarity with “the bench” in the county where your case will be heard can help your attorney know how to approach your case in the most effective way.

 

This article should not be construed as legal advice. Situations are different and it’s impossible to provide legal advice for every situation without knowing the individual facts. 


For details about the author, Hightower Reff  Partner Attorney Susan Reff, visit her profile page.

Find out more about how Hightower Reff can help with custody and support modification. 

If you need help with a child custody modification case, or a support modification case, contact Hightower Reff Law todayand come visit with one of the attorneys at the Omaha office. 

Reasons to Consider Settling Your Nebraska Family Law Case Out of Court

img_3340Divorce, child custody, and other family law cases are among the most emotionally intense kinds of litigation. There are several sound reasons to consider settling your Nebraska family law case out of court.

Court proceedings aren’t punishment

Going to trial isn’t a good way to try to punish or penalize your spouse for their wrongs. Nebraska is a true no-fault divorce state. That means that, in the vast majority of circumstances, your spouse’s status as a giant jerk isn’t going to have any bearing on the outcome of your case.

Also keep in mind that emotions can get the better of you during a family law case. It’s usually a really hard time in your life. Very rarely – if ever – does a trial do anything positive to ease the raw nerves or wounded feelings of a divorcing spouse or to heal a hurting family.

Different options, same outcome –  settling your Nebraska family law case

Whether you reach a divorce settlement agreement through the collaborative divorce process, mediation, or negotiations between your lawyer and your spouse’s lawyer – this infographic outlines some good reasons to consider settlement:

 

Additionally, settling your family law case out of court can save money in the long and short run. Settlement can be less expensive in the short run because it saves the costs of trial – which can be very expensive. In the long run, you and the other party are more likely to follow an order upon which the two of you agreed, as opposed to one decided by the judge. That means you’re less likely to have to spend money going back to court in future.

If you and the other party are able to reach a settlement agreement:

  • your attorneys or the mediator will put it in writing
  • both parties will sign it
  • the judge still needs to approve and sign a Divorce Decree incorporating the provisions of your settlement agreement
  • that Decree will be the court order that you and the other party must follow, unless the court modifies the order down the road

Not for everyone

Settlement isn’t appropriate in every case. However, in the majority of cases, good attorneys can help guide you along the path to reaching an amicable and fair settlement for your Nebraska family law case.

 

This article should not be construed as legal advice. Situations are different and it’s impossible to provide legal advice for every situation without knowing the individual facts. 


For details about the author, Hightower Reff  Partner Attorney Tracy Hightower, visit her profile page.

More information about Hightower Reff’s family law practice is available here.

If you need help with a Nebraska family law case, contact Hightower Reff Law today and come visit with one of the attorneys at the Omaha office. 

 

Nebraska Alimony – What you Need to Know (Infographic)

Nebraska Alimony - What you Need to KnowIf you’re thinking of divorce, you may also be wondering about Nebraska alimony (also known as spousal support).

Regardless of whether you think you may end up as the payor or the payee, you should know something about Nebraska alimony before you make decisions about your case.


Hightower Reff Law is a team of confident, clear, committed attorneys representing clients in the Omaha metro and surrounding areas in family law and criminal defense/dui.


The spousal support conversation is an important talk to have with an attorney who’s experienced in Nebraska family law. This article and infographic will give you some basics that will help you have a more productive conversation with that attorney.

In our many years practicing Nebraska family law in at Hightower Reff Law in Omaha, we’ve learned that the more information clients have, the more clear and confident they are about their case, and the decisions they make.

When it comes to Nebraska Alimony, there are some things you may be surprised to learn.

The alimony of yesteryear

If you’re a little older, and someone you knew many years ago divorced, you may have heard it mentioned that the husband was ordered to continue supporting the wife “in the manner to which she’s become accustomed.” That may be the way many courts approached alimony in days of yesteryear, but it’s not the way spousal support goes in Nebraska today.

The times they have a changed

In the majority of cases, Nebraska courts don’t award alimony. If they do, it’s for a short time – long enough for the spouse receiving support to get training or education or find a job. It’s sometimes called “rehabilitative spousal support.”

Nebraska courts usually consider several factors when deciding spousal support – as explained in the infographic below. The court also considers the relative economic circumstances of both parties in its alimony decisions.

 

In cases where there is child support, that will be determined first, and then the amount of spousal support will be decided based on each party’s income and expenses after child support is paid.

This article should not be construed as legal advice. Situations are different and it’s impossible to provide legal advice for every situation without knowing the individual facts. 


For details about the author, Hightower Reff  Partner Attorney Tracy Hightower, visit her profile page

Our additional resources on marital property division are available  here

If you need help with a Nebraska divorcecontact Hightower Reff Law today and come visit one of the attorneys at the Omaha office. 

Nebraska Marital Property Law – How it Works (Infographic)

Nebraska-marital-propertyIn our divorce practice at Hightower Reff Law, we find that new clients’ most common misconceptions are often in the area of Nebraska marital property law and how it works.

A common marital property misapprehension

When they first meet with us, a number of new divorce clients mistakenly think that because they kept their money in a separate account or titled an asset in their name only, their spouse won’t be able to touch the account or the asset in the divorce. However, that isn’t how Nebraska marital property law works.


Hightower Reff Law is a team of confident, clear, committed attorneys representing clients in the Omaha metro and surrounding areas in family law and criminal defense/dui.


Pre-nup or no dice

Unless you have a well drafted prenuptial agreement that complies with Nebraska law, the property and debt accrued during your marriage is part of the marital estate, no matter whether the account or title is in your name only. That means it’s marital property subject to equitable division between you and your spouse – with very few exceptions.

 

This infographic isn’t meant to be a complete rundown of Nebraska marital property law in divorce. The law can change often depending on new case law and/or changes to Nebraska statutes. Also, there may be other exceptions or special circumstances, depending on the facts of your divorce case.

Get help

That’s why, when it comes to Nebraska marital property law and how it works – or any other legal issue – it’s best to get the advice and assistance of an attorney experienced in that specific area of law. However, arming yourself with some basic knowledge, like what you’ve learned by reading this article, can help you have a more informed conversation with your attorney. It can also give you clarity and peace of mind.

 

This article should not be construed as legal advice. Situations are different and it’s impossible to provide legal advice for every situation without knowing the individual facts. 


For details about the author, Hightower Reff  Partner Attorney Tracy Hightower, visit her profile page

Our additional resource on marital property division is available  here

If you need help with a Nebraska divorcecontact Hightower Reff Law today and come visit one of the attorneys at the Omaha office.