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Getting Legal Representation for Divorce Tax Issues
Divorce and taxes are two subjects that are often difficult for people to broach. Divorces are often difficult, messy situations that are fraught with significant emotional baggage and feelings of distrust and betrayal. Taxes are complex and often difficult for a layperson to understand and grasp the multiple layers of nuances. Thus, it is no surprise that few people are enthusiastic to consider taxes in the context of a divorce.
However, understanding the tax risks you face when entering into divorce negotiations and proceedings is an essential step towards a prudent handling of the situation. Dually licensed CPA and Attorney David Klasing is experienced in handling high net worth divorce cases with criminal and civil tax consequences. As a California tax attorney and CPA who also holds a Master’s in Taxation, David understands the nexus between tax and family law concerns along with California community property considerations. He continually updates his knowledge and skills and while in Law School participated in Western State College of Law’s Family Law Clinic. David and all of the Tax Professionals at the Los Angeles and Irvine offices of the Tax Law Offices of David W. Klasing can provide careful, strategic tax guidance during a divorce proceeding. To schedule a reduced-rate consultation call the firm at 800-861-1295 today or contact us online.
To understand some of the tax traps that can snare a party during a divorce proceeding, please see a brief synopsis in the paragraphs immediately below. This synopsis is followed by a more substantial look into each concern. Also see our Q and A on this subject in our Tax Law Library.
Divorce and Family Law Attorneys Often Decline Responsibility for Tax Aspects of a Divorce
An attorney who practices in the areas of family law and divorce is often hesitant to take on the responsibility of tax law concerns. In short, most attorneys recognize the multi-layered complexity of tax law and tax considerations. Furthermore, losses due to tax advice that fails to take a comprehensive view of the situation are easily quantified and recognizable. Thus, many divorce lawyers are hesitant to step into the arena of tax law due to fear of malpractice claims. Thus, seeking a tax lawyer to handle this aspect of a divorce or separation is often not only prudent but also necessary to ensure that all relevant concerns are addressed.
For this reason, you should seek the counsel of a tax lawyer to handle this aspect of a divorce or separation. The assistance of a tax attorney during a divorce is often not only prudent but also necessary to ensure that all relevant concerns are addressed. The bottom line here is that divorce attorneys often draft themselves out of responsibility for tax issues in a divorce through their engagement letters and are often not properly trained in tax law sufficiently enough to counsel on the tax complications in a divorce. The bottom line here is that Divorce attorneys often draft themselves out of responsibility for tax issues in a divorce through their engagement letters and are often not properly trained in Tax Law sufficiently enough to counsel on the tax complications in a Divorce.
The Importance of Considering the Tax Consequences of a Divorce
Unfortunately, a failure to consider tax law during divorce negotiations and proceedings can have a fatal effect on your ability to negotiate a divorce settlement that is fair and equitable.
The tax treatment and impact of potential alimony and child support payments must be considered. In most states, including California, the determination of alimony and child support payment amounts is based on a guideline using the net monthly income of the parent that owes the alimony or child support (the “obligor”). Determining net monthly income includes a consideration of all the assets that the obligor has at his or her disposal, including income, investment portfolio, and insurance policies. But taxes also impact the net monthly income guideline. California courts will reduce the monthly income estimate by the amount in state and federal taxes, including things such as social security payments. Therefore, it is critical to have a grasp on what your overall tax liability may be post-divorce well in advance of the divorce in order to really put the tax implications of divorce into perspective.
Furthermore, considerations regarding the tax treatment and associated tax basis of transferred property incident to a separation or a divorce must also be considered. Failure to do so can allow the other spouse to leverage gains incurred due to tax planning into additional transfers of property under the settlement agreement. Furthermore, he or she may strategically fund your portion of the settlement with exclusively low-basis assets that will produce large amounts of tax liability when you attempt to liquidate them. This tactic may cause a lopsided distribution to appear equitable in the eyes of an unaware divorce attorney or judge in the context of what should be an equitable distribution of assets.
However, potentially the most pressing need for tax guidance during a divorce is the risk of criminal tax exposure. In certain situations, a divorcing spouse may threaten to reveal the other spouse’s tax crimes as a means to blackmail or extort the other spouse into conceding to transfer additional assets as part of the settlement agreement. In other cases, one spouse may be tempted to shield assets from their soon-to-be former spouse through offshore asset protection plans. These plans may result in the individual knowingly or inadvertently violating the U.S. Tax Code or foreign account disclosure laws. Furthermore, if a violation of the tax code did occur, the individual also runs the risk of facing prosecution for the alleged crimes.
Call Now at 800-681-1295 or review our Tax Law library answering additional questions
Listing of Divorce Tax Issues that we are ready willing and able to assist with:
- Consideration of tax and financial consequences prior to engaging in a formal divorce proceeding
- Divorce tax planning
- primary income
- gift tax effects of divorce
- estate tax considerations of divorce
- allocation of credits for dependent care
- transfers outside the scope of Section 1041
- negative basis property
- installment obligations
- transfers to nonresident spouse
- premarital transfers
- housing costs for the marital home
- assignment of income
- Divorce settlement trust planning
- Transfers between former spouses not incident to divorce
- Section 1001 and 121 transfers
- Tax treatment of alimony and spousal support
- tax treatment of payments of alimony arrearage
- alimony payments to third parties on behalf of the former spouse
- Excessive alimony recapture and front-loading of alimony tax provisions
- considerations regarding U.S. sourced alimony payments made to a nonresident former spouse
- Tax treatment of child support payments
- reductions incident to contingencies
- Tax consequences of property transfers between spouses
- Consequences of non-recognition of built-in gain
- Transfers of property to third parties incident to a divorce
- Applicability of special valuation rules to property held in trusts and life estates
- tax consequences of property transfers between former spouses following divorce
- tax consequences of dispositions of the marital home
- Effect of divorce on income tax filing status
- Effect of continuing joint and several liability for tax deficiencies due to joint filing
- Innocent spouse relief
- Benefits/drawbacks of sole filer, head of household, joint status, etc.
- Allocation of tax refunds
- Divorce’s impact on eligibility for tax credits and deductions including
- mortgage interest deduction
- housing costs
- dependent care
- child tax
- educational tax credits
- the exclusion for gain on the sale of a principal residence
- health insurance cost credit
- tuition
- medical payments
- Effect on jointly held qualified retirement benefit plans
- Rules entitling beneficiary spouse to qualified benefit plan’s survivorship benefits
Experienced Tax Attorneys Can Handle Your Divorce Tax Concerns
For more than 20 years, David W. Klasing has practiced as a tax lawyer and addressed the tax concerns of Californians. During the course of his career, David has handled high net worth divorce cases with criminal and civil tax consequences and he can put that experience to work for you. David and the attorneys and CPAs of the Tax Law Offices of David W. Klasing can provide the insight and guidance regarding tax issues and treatment you need to avoid an inequitable settlement that is funded with low basis assets or potential extortion due to tax crimes alleged by your ex-spouse. To schedule a reduced-rate tax consultation with our Los Angeles tax attorneys or Irvine offices, call 800-861-1295 today or contact us online.
Common Questions About Divorce Tax Issues
- Should High Net Worth Couples Plan for Divorce Taxes?
- Why Is a Tax Lawyer Necessary in High Asset Divorces?
- Does A Divorce Create a Conflict of Interest for a Family CPA?
- How Will a California Court’s Approach to Property Division in a Divorce Proceeding Affect Tax Planning?
- What are the Common Taxation Issues where Property is Transferred Incident to a Separation or Divorce?
- What Are the Effects of Prenuptial Agreements on a Divorce?
- Does Section 1041 Apply to all Property Transfers of Income Incident to a Divorce?
- What Tax Treatment Can I Expect for Divorce Property Transfers outside the Scope of §1041?
- Will §1041 Apply to Transfers Made Prior to the Marriage, Transfers Not More Than One Year After Divorce, or to Transfers Made to Third-Parties?
- What Tax Consequences will I Face When My Property Was Previously Depreciated and then Transferred Incident to a Divorce?
- How Are Losses and Liabilities Incident to a Divorce Handled under §1041?
- What Happens to My Retirement Accounts in a Divorce?
- What if My Closely-Held Business Appreciated in Value During My Marriage?
- What Tax Consequences will I Face When Redeeming Closely-Held Corporate Stock Under §1041?
- What Will Happen to My Partnership Interest in a Divorce?
- What Tax Consequences Does the Sale of the Family Home Incident to Divorce Create?
- What Is the Tax Impact of the “Out Spouse” Paying the Mortgage, Property Taxes, Upkeep on the Family Home Post Divorce?
- What Happens When there is an Inequitable Division of Marital Property? Will I Incur Additional Tax and Other Liabilities?
- What Is the Tax Impact of the “Out Spouse” Paying the Mortgage, Property Taxes, Upkeep on the Family Home Post Divorce?
- What Is the Tax Impact of Post Separation Payments with Separate Property Towards a Community Property Asset?
- What are the Common Tax Issues Surrounding Alimony, Spousal Support and Child Support in a Divorce?
- How are Alimony, Spousal Support, Palimony, or Child Support Payments Taxed?
- Are Legal and Professional Fees Paid to Secure a Divorce Deductible by Either Spouse?
- How Do I Handle Future Tax Concerns and Filing Obligations after Divorce?
- Can Divorcing Spouses Allocate Estimated Tax Payments?
- How Does California’s Community Property Affect Federal Tax Obligations in a Divorce?
- What Is the Difference between Spousal Support and Child Support Payments
- What to do with Property Transfers, Tax Issues, and Community Property in a Divorce?
- What Can Happen to the Marital Home in a Divorce?
