Divorce Taking the Plunge Has Tax & Financial Implications for Newlyweds

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The ceremony was a success, the rings fit, and the vows were a hit: When it comes to planning their weddings, couples let no detail go unnoticed. If only they were as astute at preparing for a joint financial future, starting a life together might be a piece of cake.

With wedding season in full swing, H & R Block (NYSE: HRB) reminds newlyweds that tying the knot means new tax issues that tax professionals can help couples manage:

Marriage means choices. The IRS allows married couples to file using the “married filing jointly” or “married filing separately” status. Each has advantages that can be difficult to understand. For example, if a taxpayer claims medical expenses or other itemized deductions that are limited by their adjusted gross income, filing separately may be the way to go. But if the person wants to claim most tax credits or deduct their IRA contribution, they’ll probably need to file jointly. Consulting a tax professional helps in determining the right choice for couples filing for the first time.

Social Security numbers don’t change, but anyone who has changed their last name will need to apply for a new Social Security card. If the name and number don’t match, the IRS might delay processing of the return, which means a refund could take longer than usual to arrive. Marriage also means adjusting retirement savings. Besides changing filing status on an employer’s 401(k) account, newly married taxpayers also should consider increased limits for tax-deductible IRA contributions. If the couple’s income meets certain limits, they could qualify for more of a deduction. In some scenarios, one spouse also may “borrow” from the other’s earnings to meet the limits.

Inform the IRS of a new address. If the IRS does not have the correct address on file for a newly married couple, it could take longer for a refund to arrive. Taxpayers shouldn’t count on mail to be automatically forwarded and should consider filing Form 8822 to inform the IRS. Divorce also can change a taxpayer’s financial situation. The best advice is to understand the divorce agreement and its terms, especially key components that could complicate a tax return:

Alimony is taxable and deductible. The person who provides alimony can claim the payments as a deduction, while the person who receives it can avoid a large end-of-year tax bill by paying estimated taxes during the year. Unlike alimony, child support is not deductible or taxable. Who claims children? The parent who has custody of a child usually can claim the child as a dependent. However, with the custodial parent’s consent, the parent without custody can claim the child. (The custodial parent may still be able to claim certain tax benefits related to the child, including head of household filing status, the Earned Income Tax Credit, and the child-care credit.)

Who is a head of household? There are several factors for determining the head of a household. A few include being considered “unmarried” on the last day of the year, having children or other dependents who live with you, and paying more than half the cost of providing a home for dependents. Taxpayers should consult with a tax professional to determine if they qualify for head of household status.

Divorce, annulment and legal separation are considered the same by the IRS for tax purposes. The way a tax return is affected by the situation depends on how the decree is worded, and in cases where state and federal law differ, the IRS will side with the federal government. More information about how marriage, divorce and other life changes can affect taxpayers’ financial situations is available at www.hrblock.com. In addition, taxpayers can visit one of more than 4,000 H&R Block offices open year-round to speak with a tax professional about available tax benefits and how to claim them.

Alimony Action

It's nice to know that Diandra Douglas isn't frivolously spending her reported $100 million divorce settlement from ex-husband Michael Douglas. At the one-year anniversary party for New York's Buddha Bar, Douglas told my Big Apple correspondent Baird Jones she's now co-producing her first major movie -- following stints working in the film and television office of New York's Metropolitan Museum of Art, working for Ted Turner and producing films for HBO.

''There for Me,'' starring Saffron Burrows and Paul Bettany, is about two very different couples. One couple is wealthy, while the other duo is composed of a woman married to an injured boxer, confined to a wheelchair.

Unlike so many Hollywood films, Douglas told Jones, the screenplay ''is not a film which is tied in a perfect bow [at the end]. It is a thinking person's film about the difference between love and passion, responsibility and doing the right thing.''

Anne Heche Loses Her Mind And Custody Of Son

Sally Grover - AHN News Writer
Los Angeles, CA (AHN) - Anne Heche's messy divorce has reached a startling conclusion.

The actress and her husband, Coley Laffoon, have been locked in a custody and spousal support battle since the videographer and stay-at-home dad filed for divorce in February.

Now, a Los Angeles Superior Court judge has given full physical custody to Coley, who also requested $33,000 per month in alimony to continue the lifestyle he has become accustomed to.

While the judge did not specify the amount of money he will receive, a source has told E! News that the final figures are significantly less than Coley requested.

Anne's estranged husband claimed in court documents that he did not want to leave the five-year-old boy in her sole care because of "bizarre and delusional behavior" she had shown. He also claimed that the star has "poor parenting skills."

Anne, a former girlfriend of Ellen DeGeneres, has been vocal and honest about her battle with mental illness. She documented her downfall in a 2001 biography, "Call Me Crazy."

However, the "Men In Trees" star countered Coley's statements by claiming that he spent his time at home playing pool, poker and looking at Internet porn.

Through legal documents, she said, "Coley does stay at home while I am working, but not to parent."

The former household's main breadwinner will soon be returning to Vancouver to continue filming her television show. Coley will be visiting with their son, Homer, to comply with the judge's decision that Anne receives weekend visits.

Wife Wins One-Year Order Against Dukes

By CARRIE WEIMER
PLANT CITY - A Hillsborough County judge on Wednesday granted a one-year restraining order to NiShea Gilbert, the wife of Tampa Bay Devil Ray Elijah Dukes.

The order means Dukes, who waived his appearance and was not present in the Hillsborough Circuit Court in Plant City, cannot contact his wife for one year.

As part of the ruling handed down by Circuit Judge William Levens, Dukes is ordered to undergo psychological evaluation before he is allowed to see his children.

Also under the order, Dukes is not allowed to possess weapons.

"I'm just happy that I've got it for a year, and I can move forward," Gilbert, 26, said outside the courtroom.

Gilbert said her life lately had been "hell" and that she hopes that the psychological evaluation will get Dukes the help she feels he needs.

"He just needs to get help so he can be a normal, functioning citizen," she said.

Gilbert said she wasn't surprised that Dukes was absent.

"He never shows up to court," said Gilbert, accompanied by her mother, Mary, who added that the past few weeks had been difficult.

"I'm just glad it's all over," she said.

Gilbert's lawyer, Dale Gabbard, said the next step will be arranging a hearing to determine child support and alimony.

Heather Mills Has One Regret

Sally Grover - AHN Staff Writer
London, England (AHN) - Heather Mills thinks she may have made a mistake.

The estranged wife of Paul McCartney is reportedly regretting leaving the musician and would settle for a quiet family life over a big alimony check.

The former model has been locked in a bitter court battle with Sir Paul since they announced their split, but a friend of the mother-of-one says she would gladly go back to marital bliss.

The friend told News Of The World newspaper, "She said she'd been devastated by the divorce and has become an emotional wreck. Heather doesn't care about the huge load of money coming her way. She'd much rather be happily married than rich and miserable.

"She said she would gladly give back every penny for another shot at happiness with Paul. She loved being married to him and it was the biggest regret of her life that things became so awful between them that divorce was the only option."

Heather has been labeled a gold digger since splitting with the much-loved musician.

Reader urges opposition to child support measure

This concerns House Bill 249 that Rep. Thomas H. McVea is trying to have passed. It gives rights to the custodial parent to sue for continuation of child support or alimony after the age of 18 and to continue until the child reaches the age of 23 for purposes of college or other types of technical training.
For one, the "child" is no longer a child after the age of 18 and especially up to 23. This law is discriminatory in every way to divorced parents. There is no law in our state that "makes" married parents pay for their child's college or Vo-tech type courses, so why should divorced parents be made to?

The last time I checked, college was a right and privilege to those who earn their way. This law will make it possible for not only the custodial parent to not have to be a parent when it comes to their child's education, but it also gives the "adult," 18 to 23, rights to sue either parent for their college fees, depending on circumstance.

I beg every divorced parent to voice their opinions and concerns with this law that McVea is trying to get passed. Contact his office, and/or contact your local representatives with your concerns over this unconstitutional bill.

Reese and Ryan's court battle

COURT documents published yesterday from two high-profile Hollywood splits reveal allegations of bad parenting and "outrageous'' alimony demands.

The split between former golden couple Reese Witherspoon and Ryan Phillippe is civilised - for now.

Papers filed last week by Phillippe's lawyers say he wants joint custody of his children, Ava, 7, and 3-year-old Deacon.

But there is no mention yet of the property split between Oscar winner Witherspoon, who at 31 is one of Hollywood's highest paid actresses, and Phillippe, 32, whose career has failed to reach similar heights.

Meanwhile, actress Anne Heche's divorcing husband, Coley Laffoon, wants at least $40,000 a month in support and joint custody of the couple's five-year-old son, saying the actress is a bad mother.

Laffoon alleges Heche wants to move their son Homer to Vancouver where she leaves him in her trailer in the care ofa series of paid help.

Heche's "anger toward me has clouded her ability to think rationally about what is in Homer's best interest'', he said.

Filing Taxes as Separated or Divorced

Q: What is my filing status? (Married, Single, Head of Household)

A: Marital standing at year end determines your filing status for the entire year. If you have a decree of divorce or separate maintenance, signed by a judge, you should file as single. Regardless of whether you have a signed decree you may be able to file as head of household. Filing as head of household may reduce your income tax obligation, but to qualify the following conditions must be met:
• You paid more than ½ the cost of keeping up your home for the tax year.
• Your home was the main home for your child for more than ½ the year.
• Your spouse hasn’t been a member of the household for 6 months.
If you can’t file as single or head of household, then you must either file as married filing joint or married filing separate.

Q: Is child support taxable?

A: No. Child support is neither taxable to the recipient nor deductible to the payor. If the payor owes both alimony and child support but pays less than the total amount owed, the payments apply first to child support and then to alimony. If the separation agreement doesn't delineate separate alimony and child support payments, general "family support" payments are treated as child support for tax purposes, unless the alimony qualifications are met.

Q: Are my divorce costs deductible?

A: In general legal fees are considered personal expenses so they aren’t deductible. However legal fees paid to get alimony and legal fees regarding the tax effects of divorce are deductible. The attorney must allocate fees paid for deductible and non-deductible services otherwise the deduction may be disallowed. The allowed deduction is a miscellaneous itemized deduction which is deductible only to the extent that, in the aggregate, the miscellaneous deductions exceed 2% of the taxpayer’s adjusted gross income. Some are your legal fees may be deductible, such as fees for securing income.

Q: Who gets to claim the dependency exemption for the children?

A: In general, as long as the parents combined contribute at least ½ of the support of the child, the custodial parent gets the dependency exemption for the child. If custody is split or undeterminable, the parent who had physical custody for the greater part of the year gets the dependency exemption. Custodial parents can waive their right to the dependency exemption.

Q: Is alimony taxable?

A: In general, alimony is taxable to the recipient and deductible to the payor (line 31a of the 2006 Form 1040). However, some couples stipulate in their separation agreement that the alimony won’t be deductible to the payor, or taxable to the recipient. Alimony is deductible on page 1 of the 1040 form so you don’t need to itemize your deductions to take it as a deduction. If you don’t have any other income you can still make IRA contributions. Alimony is considered earned income (Form 1040, line 11). Anyone receiving alimony, especially without wages, may need to make estimated tax payments throughout the year in order to avoid penalties when they file.

Q: Are there any tax benefits if I am paying alimony?

A: If you are paying alimony, you can use your payments to reduce your gross income.

Q: Should my spouse and I file as married, filing separate or married, filing joint?

A: Filing joint may provide some tax benefits over filing separate. However, by filing separate the IRS can’t hold you responsible for any unpaid taxes caused by your spouse’s actions or omissions. The “innocent spouse” rule provides relief from this responsibility in some cases.

Q: Who claims the Child Tax credit and the Household and Dependent Care credit?

A: Only the parent who claims the exemption for the child may claim the Child Tax credit for that child. Unlike the exemption, it can’t be traded. If you are the custodial parent, you can claim the Household and Dependent Care credit for the child even if you cannot claim the child’s exemption. If you are the non-custodial parent, you cannot claim the Household and Dependent Care credit for the child even if you can claim the child’s exemption.

Q: Who gets the mortgage interest deduction and other itemized deductions?

A: If the marital home is owned by one spouse alone, only that spouse may claim a mortgage interest deduction. Deductible expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them. In general, deductible expenses paid out of joint funds are split 50/50 between the spouses, including mortgage interest. Mortgage interest for property titled by the entireties can be claimed by whichever spouse actually paid the expense.

Q: My spouse and I are using the married, filing separate filing status. Can I use the standard deduction if my spouse itemizes?

A: No. If spouses are using the married, filing separate filing status and one spouse itemizes their deductions, the other spouse must itemize as well. You must coordinate this with you spouse because if you file first and take a standard deduction and your spouse itemizes, you may have to file an amended tax return.

Rosen Law Firm has offices in Raleigh, Charlotte, and Chapel Hill. Founded in 1990, the firm is dedicated to providing individual growth and support to couples seeking divorce by helping them move forward with their lives. Our staff of attorneys and other legal professionals expertly address the complex issues of ending a marriage. Our innovative approach acknowledges that divorce is so much more than just a legal matter. Practice areas include child custody, alimony, property distribution, separation agreements, and domestic violence relief.

Contact: Alison Kramer, 919-459-8157, akramer@rosen.com

5 Things To Do Before You Even Think About Getting A Divorce

There are many steps to take to protect yourself in a divorce. This article will get you started. Your best bet is to talk to a lawyer before you do anything.

1. Talk to a Marriage Counselor or other professional who may be able to help you save your marriage.

Even if you don’t think there’s hope for the marriage, “divorce counseling” can help you discover what went wrong, how to cope, and how to pick up the pieces and go on. Don’t wait for your spouse to participate. If you don’t know how to find a qualified counselor, our firm will be glad to recommend one or you can check out the directory of professionals at stayhappilymarried.com. Your employment, social or religious contacts might also provide leads.

2. Talk to an attorney before you do anything.

Even if you don’t end up hiring an attorney to handle your separation or divorce, you would be well advised to get as much information as you can before you even discuss divorce with your spouse. There’s a lot to know about divorce in North Carolina…our laws are complex and even the simplest situation can be very confusing to families already in distress. Actions you take now may very well affect the outcome of your divorce (see #3) and you need to understand your options ahead of time…not some time down the road when it may be too late to alter the outcome. Click here to find attorneys who are well versed in the intricacies of North Carolina divorce law.

3. Do not move out of the marital home without talking to an attorney first.

Leaving the house without a good reason may cause you to pay alimony or may result in your inability to collect alimony. If you leave the house, you may also be unable to return until after a court divides the property. This process might take more than a year. The best advice is to stay in the house until after you talk with an attorney unless your spouse is violent. If your spouse is violent, you must take all steps necessary to protect yourself and your children.

4. If you have been involved in any extramarital affairs, talk to a lawyer before you discuss this with your spouse or anyone else.

In this case, honesty may not be the best policy. In addition to the fact that adultery is illegal in some states, admission of an affair can have other dire consequences. If your spouse is a candidate for alimony, any illicit sexual behavior on your part (during the marriage…which includes the time you are separated) could end up costing you thousands in additional alimony payments.

5. Take concrete steps to safeguard your assets before you and your spouse begin discussing divorce.

One of these steps is to take possession of certain assets during separation, especially those assets you wish to be using, such as furniture and vehicles, and those assets that might be liquidated by your spouse, including precious gems and stones, other collectibles, cash, and bearer bonds.

Another self-protective step is to file what is known as a Lis Pendens in the Deeds Office of any county where you and/or your spouse own real property. The lis pendens puts third parties on notice of your claim to have an interest in the real estate against which the lis pendens is docketed. The lis pendens is basically a notice of pending litigation that may affect real property. A properly recorded and served lis pendens clouds the title to the property, preventing an effective sale of the property behind your back. The rules regarding a lis pendens contain very specific requirements, all of which are spelled out in section 1-116 and the following sections of the North Carolina General Statutes.

A third possible step to protect the assets of your marriage is to get an injunction restraining your spouse from transferring or otherwise disposing of any property covered by the restraining order. Your attorney can also use an injunction to get your separate property returned to you, where your separate property is in the possession of your spouse and the spouse refuses to give it to you. The equitable distribution statute also provides a means for you to obtain an interim distribution of marital property, pending a final resolution of the property matter. Such an interim allocation could, for instance, give you much needed funds on which to live.

Other protective measures you might consider in your divorce planning include: (1) protecting your own credit rating by freezing or closing joint cards and by blocking your spouse's access to other joint credit such as a home equity loan; (2) closing joint bank accounts and opening accounts in your own, individual name; (3) changing the name of the responsible party on utility and other bills; and (4) spending where possible your spouse's separate property first, marital property next, and your own separate property last.

While this list will help you get started on the right track, it is by no means a complete list of all the things you need to do and know if you are considering a divorce. For more information about the rights and duties of separating and divorcing husbands and wives visit http://www.rosen.com. You’ll find a complete law library, downloadable divorce forms, a legal fee calculator, a child support calculator, lists of professionals who can help you and stories from people just like you who have survived divorce.

Lee S. Rosen is a Board Certified Family Law Specialist and founder of Rosen Divorce in North Carolina. Rosen Divorce is the largest divorce firm in the Southeastern United States. For more information visit http://www.rosen.com .

Divorce Rates Declining

Well, there's good news and bad news on the marriage front. The good news: The divorce rate is declining, continuing a downward trend from 1980. The bad news, according to LegalZoom.com, the marriage rate is also declining, down nearly 50 percent since 1970.

It has been reported erroneously for decades that America is plagued by a divorce epidemic. But the fact of the matter is, the national per capita divorce rate has declined steadily since its peak in 1981 and is now at its lowest level in nearly four decades.

So are Americans making better choices about their long-term relationships? Not necessarily. In fact, some experts say relationships are as unstable as ever — and divorces are down primarily because more couples are cohabiting without getting married. An estimated, 5 million couples live together outside of marriage.

In addition, 40 percent of those cohabitation households have children. That's a potentially unhealthy situation for children, given the fragile nature of these relationships, say researchers.

Does income or class have anything to do with the declining numbers? Maybe. The data suggests that declining divorce rates have been substantial among those couples with a college education. However, the decline is not as great among less-affluent, less-educated couples.

Here is what Andrew Cherlin, a professor of public policy at Johns Hopkins University had to say. "Families with two earners with good jobs have seen an improvement in their standard of living, which leads to less tension at home and lower probability of divorce."

But there has to be more behind the declining numbers than just the fact that more couples are cohabiting. There is. According to a published AP report, some states have made concerted efforts to combat divorce with publicly funded marriage education campaigns, although their effectiveness remains in question. For example, in Oklahoma, 100,000 people have attended workshops since a marriage initiative began in 2001, but the latest divorce figures showed no drop, and the campaign's backers no long stress their original goal of cutting divorce by one-third by 2010.

Here's what high-powered, North Carolina divorce lawyer Lee Rosen had to say:

"People are coexisting more peacefully, whether they stay together or come apart. "They are more contemplative and serious about their relationships, and I see people stay together who once would have allowed the marriage to unravel."

Author Steve Peterson is the owner of the hot new family website, www.HomeandFamily101.com 

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