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Divorce and Taxes
Old 10-08-2006, 03:00 PM   #1
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Divorce and Taxes

Hi all,

Those of you keeping score at home know that I am in the process of being divorced by my wife.

I am trying to figure out the effect of this on our taxes. I have searched on the IRS website, and only came across pub 504, which says to split our predivorce income and withholding 50/50 since we live in a community property state. I also spoke with a local IRS rep who says that the profit from the house we sold should also be split 50/50 and we each get a $250,000 exemption (we sold the house while still married and we both meet the 2/5 rules for living in it and owning it).

There are a lot of other "tax items" that I need answers on though: dividends, interest, charitable contributions, state income taxes, real estate taxes, capital gains, etc.

Does anyone have any answers besides "go visit a CPA"? In lieu of that I'm just planning on reading through the instructions and assuming that if I follow them very carefully I should be OK. I have done our taxes for the last fifteen years and know how to deal with everything in our former MFJ situation.

Also, can I file as HOH?

Other information:

1. I am being assigned the exemptions and child tax credits for the three kids every year.
2. We live in a community property state.
3. Custody will be approximately 65 her / 35 me.
4. Divorce is expected to be final before the end of 2006.

If y'all want additional information let me know and I can probably provide it.

2Cor521
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Re: Divorce and Taxes
Old 10-08-2006, 03:28 PM   #2
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Re: Divorce and Taxes

Thank God my first husband and I shared (and trusted) a good friend who had been our CPA. She helped "negotiate" our taxes and filed the final tax return. Whew!

Audrey
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Re: Divorce and Taxes
Old 10-08-2006, 04:13 PM   #3
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Re: Divorce and Taxes

One thing I would do is ask your divorce lawyer how the settlement will effect your taxes and is there anything that could or should be structured differently to give you a tax advantage.

Here are the head of household rules:

http://www.irs.gov/publications/p501/ar02.html#d0e2164

and read: http://www.irs.gov/faqs/faq-kw47.html
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Re: Divorce and Taxes
Old 10-08-2006, 04:29 PM   #4
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Re: Divorce and Taxes

You will get hammered on the rates if you elect Married Filing Separately. Since the divorce will be final by the end of the year, you should be able to file as single or HOH, which will have much better rates. I believe they go by your status as of December 31. So I would try to make sure it's done by then. If you find you are still married at the end of the year, try to convince your wife to file jointly then split the proceeds. You'll both be better off.
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Re: Divorce and Taxes
Old 10-08-2006, 04:33 PM   #5
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Re: Divorce and Taxes

Quote:
Originally Posted by Patrick
You will get hammered on the rates if you elect Married Filing Separately. Since the divorce will be final by the end of the year, you should be able to file as single or HOH, which will have much better rates. I believe they go by your status as of December 31. So I would try to make sure it's done by then. If you find you are still married at the end of the year, try to convince your wife to file jointly then split the proceeds. You'll both be better off.
A related aside.............I too am going through a divorce. Taxes will not be an issue. We always filed separately as part of my "no commingling of
anything" theory. Overkill? Perhaps.

JG
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Re: Divorce and Taxes
Old 10-08-2006, 04:39 PM   #6
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Re: Divorce and Taxes

Quote:
Originally Posted by Mr._johngalt
...as part of my "no commingling of anything" theory.
Perhaps the no-commingling rule is what killed the marrige, no?
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Re: Divorce and Taxes
Old 10-08-2006, 04:47 PM   #7
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Re: Divorce and Taxes

Quote:
Originally Posted by OldMcDonald
Perhaps the no-commingling rule is what killed the marrige, no?
Well, it didn't help.

JG
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Re: Divorce and Taxes
Old 10-08-2006, 05:34 PM   #8
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Re: Divorce and Taxes

JG, my condolences to you.

Martha, thanks. I have been consulting with my atty on the taxes a little bit. It looks like I might be able to file HOH this year but not after that. The question is whether or not I meet the home and dependent tests based on my fact pattern, which isn't simple.

Everyone else, thanks for your input.

2Cor521
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Re: Divorce and Taxes
Old 10-08-2006, 06:44 PM   #9
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Re: Divorce and Taxes

Quote:
first husband and I shared ... a good friend
i'm shocked! ...and amazed that no one has similarly commented.
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Re: Divorce and Taxes
Old 10-08-2006, 07:35 PM   #10
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Re: Divorce and Taxes

Prenup?

Quote:
Originally Posted by Mr._johngalt
A related aside.............I too am going through a divorce. Taxes will not be an issue. We always filed separately as part of my "no commingling of
anything" theory. Overkill? Perhaps.

JG
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Re: Divorce and Taxes
Old 10-09-2006, 07:29 AM   #11
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Re: Divorce and Taxes

Quote:
Originally Posted by Patrick
Prenup?
Okay, it is not romantic, but I would NEVER have remarried without
one. Yes, folks, mean old John has been in love (more than once),
but after divorce No. one I knew the "Holy Bonds" (that's marital, not
junk) were "off the table" w/o a prenup.

JG
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Re: Divorce and Taxes
Old 10-09-2006, 09:35 AM   #12
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Re: Divorce and Taxes

Quote:
Originally Posted by Mr._johngalt
Okay, it is not romantic, but I would NEVER have remarried without
one. Yes, folks, mean old John has been in love (more than once),
but after divorce No. one I knew the "Holy Bonds" (that's marital, not
junk) were "off the table" w/o a prenup.

JG
I suppose a pre-nup is "easier" with "wife number 2"...............can't imagine wife #1 going along with it............(at least not MY wife)..........
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Re: Divorce and Taxes
Old 10-09-2006, 09:36 AM   #13
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Re: Divorce and Taxes

Quote:
Originally Posted by FinanceDude
I suppose a pre-nup is "easier" with "wife number 2"...............can't imagine wife #1 going along with it............(at least not MY wife)..........
I guess that would depend on who's bringing the assets to the marriage.

JG's reviving an old topic-- search for the prenup keyword.
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Re: Divorce and Taxes
Old 10-09-2006, 08:37 PM   #14
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Re: Divorce and Taxes

Quote:
Originally Posted by Mr._johngalt
Okay, it is not romantic, but I would NEVER have remarried without
one. Yes, folks, mean old John has been in love (more than once),
but after divorce No. one I knew the "Holy Bonds" (that's marital, not
junk) were "off the table" w/o a prenup.

JG
Same for me. After getting reamed out by the court during my divorce I decided I would not get remarried without a prenup.

Quote:
Originally Posted by FinanceDude
I suppose a pre-nup is "easier" with "wife number 2"...............can't imagine wife #1 going along with it............(at least not MY wife)..........
Well for me it was quite simple, she could take it or leave it. No prenup, no marriage. She decided to take it and live a fabulous life with a fabulous guy!
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Re: Divorce and Taxes
Old 10-09-2006, 09:45 PM   #15
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Re: Divorce and Taxes

JG and 2ndCorp521st,

Sorry to hear about the divorce. Been there done that and have the financial scars to show it. Marriage number 3 for me and no prenup. It might be a mistake but after two years we are doing fine despite a huge amount of stress due to her multiple surgeries and now disability. We discussed a prenup since I had the bulk of our assets but I felt it was like a slap in the face for our relationship (my thoughts not hers).

Nobody knows what the future holds. We can only do what makes sense for your unique situation. Sometimes a prenup is a good idea and will be used in the future. Other times it is forgotten and never used. After 10 years most are pretty much worthless anyway unless you continue to keep your stuff separate. That does not work for me but your mileage may vary.

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Re: Divorce and Taxes
Old 10-10-2006, 08:09 AM   #16
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Re: Divorce and Taxes

Quote:
Originally Posted by SteveR
JG and 2ndCorp521st,

Sorry to hear about the divorce. Been there done that and have the financial scars to show it. Marriage number 3 for me and no prenup. It might be a mistake but after two years we are doing fine despite a huge amount of stress due to her multiple surgeries and now disability. We discussed a prenup since I had the bulk of our assets but I felt it was like a slap in the face for our relationship (my thoughts not hers).

Nobody knows what the future holds. We can only do what makes sense for your unique situation. Sometimes a prenup is a good idea and will be used in the future. Other times it is forgotten and never used. After 10 years most are pretty much worthless anyway unless you continue to keep your stuff separate. That does not work for me but your mileage may vary.

You are a brave man (and a thoughtful one too). I had the best of intentions vis-a-vis my last spouse (don't we all?). For me a prenup
is just part of a "Hope for the best but have a plan for the worst"
lifestyle. I do this in all venues. Probably think too much but it's
(thinking) saved my a** many times.over the years.

JG
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Re: Divorce and Taxes
Old 10-10-2006, 12:58 PM   #17
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Re: Divorce and Taxes

Thnak goodness this couple had the foresight and good judgement to avoid a nasty divorce.

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Re: Divorce and Taxes
Old 10-10-2006, 05:07 PM   #18
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Re: Divorce and Taxes

Sorry about the divorce, been there, done that too. When I got divorced the accountant told me that whatever the divorce papers said had the most weight with the IRS concerning claiming dependents and being allowed to claim HOH. The actual time spent with each parent was not the factor that the IRS looked at for tax purposes according to him. So as far as taxes go, get it stipulated in the divorce settlement that you are allowed to claim the children (or at least one child) and then you should be able to claim HOH which saved me a bundle anyway.
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