Your Family Law Tax Questions Answered

From divorce proceedings to planning for the inevitable, learn how to protect yourself and your family

You’ve crossed the first hurdle: saying it’s over. The hard (and often most contentious) work begins when it’s time to begin negotiations over property divisions and support obligations. But splitting from your ex is much more than taking what’s yours and walking away. Property and asset divisions have major tax implications which must be accounted for with your Columbus divorce attorney, and often a team of skilled financial advisors, like Rebekah Smith and Patrick Aquilina from GBQ.

Spousal support, property division and taxes

First, in order to be deductible by the payor and taxable to the recipient, spousal support payments must be in cash. If you’re paying or receiving spousal support, this term is quite specific for purposes of income taxation.

Unlike checks and money orders, transfers of services or property (or the use of property) are not treated as alimony. You cannot receive an income tax deduction for property transferred to your spouse, nor can your spouse report the property as income. In a nutshell, property transfers that result from a divorce cannot be reported as a taxable gain or loss.

However, divorces are rarely so cut and dried. Your Ohio family law attorney will most likely partner with tax and legal advisors before heading to the negotiating table. Some examples of more complicated tax issues that might need to be addressed:

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What is innocent spouse relief, and how can it protect you?

Picture this: Your divorce is finalized. You’re years down the road and hope—believe—all of this is behind you. Then you find out that your ex filed erroneous or fraudulent joint tax returns when you were still married. You had no idea, but the keyword here is “joint.” This means that you personally attested that the return was accurate and complete, and are thereby equally responsible for any errors or misrepresentations.

Since July 1998, federal tax law has included “innocent spouse” relief: if a taxpayer files a joint tax return but then divorces, legally separates or lives apart from his or her spouse for one year, he or she might be able to limit or even avoid liability if he or she can prove that the other spouse caused the tax problems. For example, an “innocent spouse” must not have had any actual knowledge of the former spouse’s tax violations. Whether you qualify for innocent spouse relief is an analysis based on several other facts and circumstances, including (but not limited to):

  1. If you actually knew of the understatement, or if a reasonable person in similar circumstances would have known
  2. The nature of the erroneous item and the amount of the erroneous item relative to other items
  3. You and your spouse’s financial situation
  4. Your educational background and business experience
  5. The extent of your participation in the act that resulted in the erroneous item
  6. Whether you failed to inquire, at or before the time the return was signed, about items on the return (or omitted from the return) that a reasonable person would question
  7. Whether the erroneous item was noticeably different from the norm in past returns

If you have any doubt as to the legitimacy of your spouse’s tax returns, you should have an independent tax professional examine prior year returns before the divorce proceedings. If there are concerns about misstatements or understatement of income on joint returns, your divorce lawyer can include a request for indemnity as part of the divorce settlement.

Blending new family members into the (legal) mix

If you go on to build a new family, your legal decisions could be far from over. Any relationships could create tension between your new significant other and the children from your previous marriage.

Blended families take some extra care to ensure that both the new and original spouses, as well as children, are taken care of should a tragedy take place. While your children and new spouse may play nice now, it could be a different story once you aren’t there to foster those relationships. Children of a previous marriage may have feelings of entitlement, especially when gifts or inheritances passes to a non-parent or children of that non-parent.

Protecting everyone you love in a blended family can be a tightrope act. You’ll need an Ohio family law attorney to help make sure that your new family has the financial security they require, while also protecting the inheritance of the children from your previous marriage. If your family is blended, consider this:

How GBQ helps the Ohio family law community

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GBQ is the Central Ohio’s largest independent accounting and consulting firm. While their size permits them to serve even the most complex organizations, their independence allows them to keep all decision-making authority in one place.

Rebekah Smith, Director of Forensic and Dispute Advisory Service

Ohio family law 2Rebekah has over 18 years of experience focusing on the areas of litigation consulting, forensic accounting, economic damages, and business valuations. She has been involved with providing forensic accounting, investigative, and risk assessment services to both corporate and governmental agencies in a variety of situations including fraud, embezzlement, and other accounting or business irregularities.

 

Patrick Aquilina, JD Director of Forensic and Dispute Tax Senior Manager Advisory Services

ohio family law 3Patrick specializes in high net worth individuals, trust, estate, and gift tax compliance, legal research and writing, and wealth and succession planning. Prior to joining GBQ in June of 2013, Patrick spent 10 years with PwC in their personal financial services group serving individual clients, before leaving to join RFA Management Company, LLC in Atlanta, Georgia.

 

 

 

 

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