The Wall Street Journal: Divorced Couples, Put Aside Your Differences…for the Tax Break

Tax issues can surface every year, but former spouses who continue to feud lose the opportunity to save themselves taxes. The Wall Street Journal shares six tax issues that could affect you if you are divorced.

Divorce has many miseries. Taxes are one of the most persistent.

Issues can resurface annually during filing season and continue to affect couples years after they split. If former spouses don’t set aside their differences, one or both partners often end up overpaying.

Scott Kaplowitch, a managing partner with Edelstein & Co. in Boston, recently prepared a divorced couple’s returns. Although the ex-wife had the right to take deductions and credits for the couple’s children, there was no benefit for her because she has no employment income. She allowed her former husband to use the tax breaks and saved him about $2,500, Mr. Kaplowitch says.

The couple didn’t split the savings, he adds, but “it produced good will for the future.”

That’s the best case.

Tensions between ex-spouses are evident in Internal Revenue Service data. For the five years that ended in 2015, people paying alimony deducted some $57 billion, while people receiving alimony claimed only about $47 billion—a $10 billion discrepancy.

After a Treasury watchdog chided the IRS about the alimony gap in 2014, the agency became more vigilant. Now returns are automatically rejected if the alimony payer doesn’t supply a Social Security number for the recipient, an IRS spokesman says.

If you’re divorced, here are tax issues to watch.

Alimony. These payments, often called “maintenance,” are deductible by the payer and taxable to the recipient. To be deductible, payments must be made in cash and must be provided for in the divorce or separation agreement.

Voluntary payments for other items, such as a new computer for a child, typically can’t be deducted. The IRS has a history of challenging alimony deductions it thinks are nondeductible property settlements, child support or gifts.

Alimony can fund an individual retirement account. Alimony deductions end when the recipient dies, if payments haven’t already ended. For more on the definition of alimony, see IRS Publication 504.

Child support. These payments aren’t deductible by the payer or taxable to the recipient.

Dependent exemption. This benefit is a deduction, currently $4,050 for each child who qualifies as a dependent. There are several tests for this benefit, and they are detailed in IRS Publication 501.

Ex-spouses can often use IRS Form 8332 to toggle this exemption back and forth from year to year. This can be a good strategy if one ex is sometimes a high earner, because in 2016 the exemption began to phase out at $259,400 of adjusted gross income for single filers.

For feuding ex-spouses, there is an important caveat: The parent claiming the dependent exemption must include each child’s Social Security number, and the IRS’s system will reject a later-filed return claiming the same number. Even if the second-filing spouse deserves to take the exemption, the IRS seldom has the resources to sort out this issue, experts say.

Tax credits. These valuable breaks offset taxes instead of merely reducing income, and in some cases they can result in a refund check for a taxpayer who owes no tax. Tax credits involving children typically go to the spouse claiming the personal exemptions for them.

The Child Tax Credit of up to $1,000 per child began to phase out at $75,000 for single filers in 2016. The Earned Income Credit, which benefits the working poor, was up to $6,269 for single filers with three or more children and income up to about $48,000. The Dependent Care Credit, which is up to $2,100 for two or more children and $6,000 of total eligible expenses, has no income limit.

Education benefits. For most people, the best tax break for college is the American Opportunity Credit, which can reduce taxes by as much as $2,500 on up to $4,000 of college expenses per child.

Single filers get a lesser break or none if their income exceeds $80,000, but in some cases the child can benefit by claiming the credit if neither parent can—even if the child doesn’t pay the tuition.  

Taxes on a residence. To take typical homeowner deductions for mortgage interest or property taxes, a person must have full or partial ownership of the home and actually pay the expenses.
What if a home is sold and the proceeds divided? Each ex-spouse can get an exemption of up to $250,000 of gain, as long as that person both owned the home for two years and used it as a main residence for two years. For more details, see IRS Publication 523.

Kyung (Kathryn) Dickerson on NewsChannel 8: January is the Month for Divorce

January’s divorce filings are 30% more than any other month. SmolenPlevy Principal and family law attorney Kyung (Kathryn) Dickerson appeared on News Channel 8’s Good Morning Washington to explain why there is such an increase in divorces at the start of the new year.

Unhappy couples often wait until after the holidays because they don’t want to ruin that time for their children and family members. For some, spending extended time with their spouse confirms their desire to end the marriage. “There’s that post-holiday fatigue, where you are able to endure the holidays only because you know it’s the last time you will have to go through them or have to see your in laws again,” Dickerson tells Good Morning Washington host Larry Smith.

Dickerson provides some important tips to consider if you are planning on filing for a divorce.

  • Gather copies of documents that verify assets, liabilities, income and expenses.
  • Avoid unnecessary litigation expenses by being reasonable. Don’t do anything out of spite like cancel your spouse’s credit cards (without notice) or freeze the only accounts to which they have access.
  • Have realistic expectations. You are now going to support two households on the same income that paid for one. You will have to make some cuts and budget for a divorce.

Debt incurred jointly during the course of a marriage can stay with the couple. Dickerson says, “The credit card company doesn’t care if you’re getting a divorce. So be careful when you sever credit card ties. The last thing you want is your spouse standing in the grocery line, trying to pay for groceries for himself and the children, and realizing he doesn’t have a functioning credit card.”

Watch the full segment of Kyung (Kathryn) Dickerson on Good Morning Washington above.

On Air: WTOP Interviews Alan Plevy About Navigating Divorce During the Holidays

Divorce is difficult for children and their parents any time of the year, but the holidays can be particularly challenging. News radio WTOP turns to SmolenPlevy Co-founding Principal Alan Plevy for insights on how divorced or separated parents can reduce tension levels during the season.

Plevy says parents should keep the lines of communication open and try to work out details about times and days the children will spend with each parent.It’s important to put these agreements in writing, either by email or texts, so there are no misunderstandings. Another helpful tip: don’t get into a “can-you-top-this” gift battle. Plevy also suggests parents create new holiday traditions, such as volunteering at a homeless shelter, going ice skating or making reservations at one of their favorite restaurants. And finally, Plevy says pay special attention to how you, family members, and friends talk publicly about the other parent.

Plevy explains that “It’s really a holiday for the children, so we want to eliminate as much stress as possible for the children.”

Listen to Plevy on WTOP Radio below:

 

The Huffington Post: Tips to Survive the Holidays for Divorced Parents

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As seen on The Huffington Post by Alan Plevy and Kyung (Kathryn) Dickerson.

Divorce is difficult for children and their parents at any time of the year, but it can be particularly challenging during the holidays. There are a number of issues that can arise, including:

  • coordinating when and where the children are supposed to be,
  • the gift giving tug-of-war, where the parents try to outdo each other by giving the most expensive present, or try to make life difficult for the other parent by giving particularly annoying gifts, and
  • the termination or modification of established family holiday traditions.

The uncertainty and stress of being in a separated family or a divorced family can cause disagreements to quickly escalate into arguments, making this an overwhelming and stressful period for both parents and children. However, there are some things that you can do as a parent to make things easier during the holiday season.

Put your children first: Holidays when the parents aren’t together can be difficult for children, especially right after the initial separation. There is often a mixture of negative emotions: sadness, anger and disappointment. Make sure you listen to your children’s concerns and let them know that it is okay to have this mixture of emotions. Don’t forget that the holidays are supposed to be a fun, festive time for your children, so consider how constant tension and repeated arguments will impact them and try to lessen their exposure.

Plan ahead: To avoid confusion, uncertainty and arguments, parents need to create a logistical plan ahead of time that specifies when and where the children will be. Don’t make the mistake of waiting until the last minute to decide where the children will be and for how long the children will be with which parent. Make sure you confirm plans in writing, whether via email or otherwise so that both parents have a record of your agreements. Having written plans helps avoid misunderstandings. Also, don’t forget to keep your children updated on where they will go and when. It helps alleviate anxiety for children when they know that together their parents have come up with a plan for them during the holidays.

Avoid a gifting competition: Unfortunately, parents, particularly newly separated parents, can get into a gift giving war. It is not uncommon for one parent to give gifts that they know the children want without consulting the other parent or knowing that the other parent explicitly disagrees with the gift. This includes electronics like iPhones and iPads that one parent thinks is not age appropriate for the child. In other circumstances, parents try to compensate for any stress and anxiety children may be feeling as a result of the recent separation of the family by showering them with presents, well in excess of what they would have otherwise given if the family were intact. The best gift for your children is to avoid these competitions, because they not only cause strain between the parents, but also cause anxiety to the children. While the child might be initially thrilled to receive a pet, if they can’t take that pet to the other parent’s house then the gift ultimately causes them to feel stress, anxiety and disappointment. Sometimes, the gifts cause children to feel like a pawn in their parents’ battle – this is especially true for electronics, where one parent uses the child and the electronic device to “spy” on the other parent’s home. If it is at all possible, coordinate with the other parent so that the gifts are given from the parents jointly – despite the parents living in different households – this will give the children a sense of comfort that is a gift beyond a typical present.

Create new traditions: The holidays are usually a time for family traditions, but for divorced or recently separated parents, it might be time to start new ones. Holiday traditions can make the season special for children and establishing traditions where they focus on the needs of those less fortunate than themselves can ease the disappointment and anxiety that accompanies the breakup of their family. Also, creating new traditions gives the children something to look forward to in the years to come, and eases the loss of other established traditions.

Give yourself a gift: It is common for a divorced or newly separated parent to feel sad, alone and stressed during the holidays. Occasionally, because of the established visitation schedule, a parent might find themselves having more free time than in previous years or not having their child with them on the day of the holiday. While the children are learning to adapt to the established structure, you should as well. Therefore, use this time to do something special or to create a new tradition for yourself. By taking action to alleviate stress, you will give yourself the time to recharge and be at your best during the time that you have your children for the holidays.

 

The Huffington Post: The Pros and Cons of a Co-Parenting Coordinator

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As seen on The Huffington Post by Alan Plevy and Kyung (Kathryn) Dickerson. 

Tensions can run high when former spouses have to work together and oftentimes, divorced couples feel like they are no longer allies. Yet, when they have children, there are numerous decisions that the divorced couple needs to make together. Enter professional decision makers, also known as co-parenting coordinators. A co-parenting coordinator is a neutral third party who serves a divorced or separated couple as a decision maker and a facilitator of communication.

Your ideal co-parenting coordinator is someone who will work themselves out of the job. It is important for parents to learn to work effectively with their ex-spouse and their children, and a good co-parenting coordinator will help the parents not only resolve the immediate issues but also establish a method by which the two parents can resolve future issues by themselves.

Several years ago, there was a notable increase in the number of co-parenting coordinators/counselors and a related spike in the number of problems associated with their use. However, since then, the trend in using co-parenting coordinators has leveled off to a certain extent and parties have become more discerning about what they want from a co-parenting coordinator, including how long they want to pay the fees to employ one.

Co-parenting coordinators are professionals, often psychologists or other mental health counselors, whose role is to help reduce, mediate and settle conflicts between divorced parents on matters regarding their children. Sometimes the coordinator can even be the decision maker if the parents are at an impasse. The role and the limits of what a co-parenting coordinator can do are set forth either in a contract signed by both parents or in the court Order appointing them. During regularly scheduled meetings (or emergency meetings if the contract or Order permits these meetings), co-parenting coordinators serve as an impartial third party to listen to and resolve issues like:

  • Schooling;
  • Visitation and custodial arrangements;
  • Holidays;
  • Camps;
  • Non-emergency medical care; and
  • After-school activities.

Ideally, the co-parenting coordinator listens to both parents and helps the parents come to a decision. The process is intended to avoid the escalation that may result when small issues become larger arguments, and to reduce the delay and legal expenses associated with litigating parental disputes. The role of the co-parenting coordinator is to help parents during that difficult period following a divorce when parents are learning how to co-parent while living in different homes.

During the period when the use of co-parenting coordinators was growing dramatically, they were often treated as a panacea. But unfortunately, co-parenting coordinators do not magically cure the communication issues between the spouses which often led to the divorce. Nor do co-parenting coordinators eliminate the different perspectives and opinions parents have when it comes to various challenges of raising children, like whether the child should go to an overnight camp or when a child should get a smart phone.

Parents have learned that their inability to come to a resolution on issues, like whether the child can bring their pet from one parent’s home to the other’s, or whether the child would participate in a specific activity, was costly in the time and money that was spent in co-parenting sessions. If co-parenting coordinators are used as a permanent decision-making mechanism by parents, parents can spend significant funds during the period between their divorce and when their child becomes an adult.

Previously, there was no time limit set for the use of a co-parenting coordinator, and parents who had been divorced for years were still required to use the co-parenting coordinator to resolve any disputes. Another problem with the lack of a termination date is that parents are not forced to figure out how to work with each other. Instead, they expect the coordinator to continue solving their problems; this does not encourage parents to move beyond the often dysfunctional relationship they were in at the time of their divorce. Additionally, if the parents and the co-parenting coordinator are unable to reach a resolution, either parent can take the matter to court and litigate the issue, however small, in front of a judge.

Further, the expense of a co-parenting coordinator, who is usually paid for by both parents in equal share to maintain their neutrality, can work to the disadvantage of the parent who has a less disposable income. There are some parents who “win-at-all-costs”, who try to bully the coordinator and their ex-spouse. In some cases, one parent will repeatedly call and email the coordinator, trying to dominate the process and to wear down the coordinator in order to “win” whatever issue is raised in the co-parenting session. There have been parents who have demanded meeting after meeting with the coordinator and presented the coordinator with multiple binders of documents just to run up the costs of co-parenting, hurt their former spouse and to ensure that no resolution is reached.

If you want to incorporate the use of a co-parenting coordinator, consider the following:

  • Before you hire the coordinator, thoroughly interview the coordinator. Find out what experience, education and training they have, what their approach is to the communication challenges of your situation, what their experience and approach is to the needs of your children, particularly if your children have special needs, and what processes they have found to be most effective in resolving differences between parents.
  • Ensure that your former or estranged spouse also wants to use a co-parenting coordinator and that the two of you have similar expectations from the process. This is not marriage or family counseling, nor should it be a place to rehash the issues from the marriage.
  • Set an end date for the use of a co-parenting coordinator – ideally this date is within 3-6 months of their appointment.

Remember that a co-parenting coordinator is a neutral third party whose ultimate goal is to reduce the conflict between the parties and set up a process through which the parents can resolve issues without the co-parenting coordinator’s intervention. Used judiciously, a co-parenting coordinator can be an effective and cost-efficient tool for divorced parents. 

On Air: Alan Plevy Discusses the Effect Divorce Has on Children on NewsChannel 8

There is a lot at stake in the recently announced split between Angelina Jolie and Brad Pitt; SmolenPlevy co-founding principal and family law attorney Alan Plevy was on News Channel 8’s Good Morning Washington explaining some of the nuances and complications arising out of their separation.

For instance, reports say Jolie is asking for sole physical custody of the couple’s six children. What’s the difference between physical and legal custody? Plevy explained physical custody refers to where the kids live primarily. With physical custody comes the opportunity and ability to make day-to-day decisions by the parent with whom the child lives. Legal custody is the right to participate in major decisions regarding, among other things, the children’s health, safety, and medical welfare.

Addressing the alleged reports that Brad Pitt is being investigated for child abuse, Plevy explained that if someone files a report, the authorities are obligated to investigate. But Plevy also noted that Jolie’s divorce documents disclose that she is seeking joint legal custody.  This means that she believes that she and Pitt can work together to make major decisions regarding the children’s health, safety and welfare.  It implies that she trusts Pitt’s judgment on those issues. Plevy also raised the point that both Jolie and Pitt are continuously surrounded by security and other supportive personnel.

NewsChannel 8’s Jeff Goldberg and Julie Wright also asked Plevy to explain what was necessary for Jolie to win sole physical custody. Plevy said, “She’s got to prove that he’s impacted the children in one way or the other. There are allegations of drugs and partying, and so forth. But if those incidents took place some place outside of the children’s domain, or where they may be, then that’s not going to have that much of an impact. It has to somehow affect the children.”

Watch the full segment of Alan Plevy on Good Morning Washington above.

The Huffington Post: 5 Reasons For a Prenup

SmolenPlevy-Dickerson-Plevy-Reasons-PrenupAs seen on The Huffington Post by Kyung (Kathryn) Dickerson and Alan Plevy.

5 Reasons For a Prenup–Even if You Aren’t a Celebrity

There’s nothing classically romantic about prenuptial agreements. Most couples willfully avoid them because they don’t want to ruin their blissful idea of a marriage lasting until death do they part. But they can learn from the long list of celebrity splits about what can happen when you don’t have a prenup. In one of the most expensive Hollywood divorces, actor/director Mel Gibson reportedly paid $425 million to his ex, Robyn Moore.

Recently, actress Kaley Cuoco, the 30-year old star of the Big Bang Theory and one of TV’s highest-paid performers, split from tennis player Ryan Sweeting. Because of a prenuptial agreement, he reportedly will only get a lump sum of $165,000 and $65,000 for legal fees.

But you don’t have to be a celebrity to benefit from a prenuptial agreement. Without one, divorce litigation can become costly and complicated. More importantly, a premarital agreement often forces couples to discuss in detail uncomfortable financial issues that they might otherwise have ignored. It is challenging to discuss what debt a person brings to the marriage and the basis of the debt – especially if it is consumer debt, like credit cards. Disclosing a prior bankruptcy can be more difficult than disclosing a prior marriage. A premarital agreement, no matter who brings it up, opens the door to those conversations.

Here are some reasons prenuptial agreements can be useful for couples.

Second marriages/blended families: Often, people have continuing obligations to their prior spouse or to children from a prior relationship. Premarital agreements can determine which assets will be protected or allocated for the children of a prior relationship, and which assets will be safeguarded for the new spouse. Premarital agreements can also protect the new spouse’s assets from being used to pay the arrears or debts arising out of their spouse’s prior marriage.

If you own a business: Young entrepreneurs rarely imagine a divorce being one of the biggest threats to the stability of their business, but it can significantly impact cash flow, ownership, and productivity. Regardless of whether you started your company before marriage, a spouse may claim a portion of the business appreciation or income. Prenups can classify which assets are separate or marital. This means you and your intended spouse can agree that your business will be considered your separate property and not subject to division upon divorce.

Death or disability: While most people think divorce when they hear about premarital agreements, such agreements can also protect your assets in case of disability or death. Premarital agreements can prevent, or provide a remedy if an estranged spouse retitles or liquidates assets during their spouse’s disability.

Debt: Some couples may have more debt than assets. Couples with significantly different debt loads can protect themselves in the same way as couples with vastly different wealth. The couple can agree as to which debt shall be considered a separate, non-marital obligation and how the income of the couple will be allocated during the marriage as to the payment of that debt.

Inheritances: If one or both spouses expect to receive an inheritance over the course of their marriage, a premarital agreement can protect it from division upon death or a divorce. Family heirlooms can also be specified to remain in one spouse’s possession.

The Huffington Post: Common Post-Divorce Life Changes

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A parenting relationship does not end when the divorce proceedings do. SmolenPlevy Principals Kyung (Kathryn) Dickerson and Alan Plevy share six common post-divorce life changes with The Huffington Post.

Life After Divorce: 6 Common Post-Divorce Life Changes

Circumstances change over time and affect the continued workability of the original arrangements and create issues to which you have to adapt. Children grow older and their needs change. Either or both of the parents often find their lives become significantly different than they were during the original proceedings.

Here are some of the most common post-divorce life changes and how you can prepare for them.

Remarriage: A new marriage, for either or both divorced parents, can mean lots of changes — especially for their children. Will the new marriage lead to relocation? How well does the child interact with the new spouse? Older children might feel displaced by infants or other children new to the household. Planning the introductions, staggering the combining of families and working with the other parent to help the children adapt to the changes can make the transition from a single parent household to a blended family easier for the children.

Read the rest of Dickerson and Plevy’s suggestions on The Huffington Post

The Huffington Post: Summer Vacation Tips for Divorced Parents

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For divorced and separated parents, summer vacation can be a chaotic and combative time. SmolenPlevy Principals Kyung (Kathryn) Dickerson and Alan Plevy share six tips for summer vacation tips for divorced parents with The Huffington Post.

6 Summer Vacation Tips for Divorced or Separated Parents

It’s an annual rite of Spring — children are eagerly anticipating the end of the school year and the start of their summer break. The same can’t be said for a number of divorced or separated parents. Summer vacation can deteriorate into a very stressful, chaotic and combative time for parents who share custody as well as a confusing time for their children. This nightmarish scenario can be avoided. Here are some tips to help create peace and ensure that your children have a fun summer.

Plan ahead: To avoid last-minute disagreements, parents should discuss and come up with a vacation schedule. Most separation agreements or Court Orders set out what time each parent has with the children during the summer. This can simplify this time of year for those families, but the agreements or Orders often set out deadlines by which you must notify the other parent of your vacation. If you don’t make timely decisions, you can lose your right to have priority in the selection of exclusive time with the children.

Read the rest of Dickerson and Plevy’s tips The Huffington Post.

The Divorce To-Do List: Kyung Dickerson Shares Tips for Couples with The Huffington Post

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While no two divorces are the same, there are certain proactive steps couples can take before separating. SmolenPlevy Principal Kyung (Kathryn) Dickerson a divorce to-do list with The Huffington Post:

 The Divorce To-Do List

“Till death do us part.”

When most couples make that vow, they don’t think that divorce is a possibility. But statistics reflect that a significant number of marriages don’t last. While couples often spend countless hours planning their wedding, many spend far less time preparing for a divorce. This can make an already challenging time even more difficult.

While every marital breakup is different, there are certain steps that couples should take before separating. By investing this time, they may avoid significant negative financial repercussions.

It is prudent to know what comprises your marital estate. The following can help you educate yourself.

Follow the money: In most marriages, there is a division of labor. One person might do the cooking and mow the lawn, while the other one might do the laundry and pay the monthly bills. Even if you aren’t the household CFO, you still need to understand what accounts exist, how they are titled and how they are managed. You should be able to access any accounts on which you are titled. If account passwords are changed regularly or have been changed since you’ve last looked at the accounts, make sure you know the new ones and where they are kept.

Read the rest of Dickerson’s Divorce To-Do List in The Huffington Post.