Divorce - who gets the 1099-DIVs?

[sakowitzm]

This situation is real, but I’ve greatly simplified it.

John and Mary were married for 20 years, but have been estranged and living separately for the last three years. Throughout 2022 they’ve been working out an amicable divorce settlement. On November 30th the divorce was legally finalized.

John and Mary have one joint investment account at Fidelity. It’s a joint account, but the address on it is John’s address. The account holds 100 shares of XYZ Corporation. In March, June, and September, XYZ declared a $1.00/share dividend. On November 30th John and Mary split the joint account into two separate, individual accounts at Fidelity (thus the joint account and John’s new individual account have different account numbers.) Each of the two individual accounts now (as of December 1) hold 50 shares of XYZ Corp.

On December 10th XYZ declares its usual quarterly $1.00/share dividend, to shareholders as of December 15th, payable on December 20th. So this Q4 dividend will go $50 to John in his individual account and $50 to Mary in her individual account. Note that the IRS says that if you are divorced on December 31st you were divorced for the entire year. Thus, John and Mary will be filing individual tax returns for 2022.

Question 1. Does (do) the 1099-DIV(s) come from Fidelity or from XYZ Corp?

Question 2. Is one 1099-DIV sent to John, covering the entire year? Or do three 1099-DIVs get sent out – one to John for the first three dividends, and then one each to John and Mary for the fourth dividend?

Question 3. John and Mary agree that for the first three dividends, they should split them evenly on their 2022 taxes, and thus each should declare $1.50/share. But none of the 1099-DIVs will show $1.50/share. So how do John and Mary report this on their 2022 individual tax returns?

Thanks for your help.

 

[jebmke]

The 1099-DIV will be sent to the owner of the account and the last known address for the account as they know it. Unless the assets are split into individual accounts before year-end there will only be one 1099.

 

[Souschef]

You are not talking about a lot of money. From personal experience, if the 1040 amount does not match the 1099, at some point you may get a letter from the IRS.

 

[cathy63]

1. The 1099-DIV forms come from Fidelity
2. There will be 3 1099-DIVs because there are 3 separate accounts. Two go to John, one goes to Mary.
3. I think the dividend income that belongs to Mary but was reported to John should be treated as nominee dividends by John. I have never done this and I don't know the exact process for reporting it to the IRS, so you need to do that research; but the basic idea is that John issues a new 1099-DIV to Mary for half the income, then they both report their halves on their own returns.


edit: I was curious, so I looked it up. Here are the Schedule B instructions for nominee dividends.

Line 5. Report on line 5 all of your ordinary dividends. This amount should be shown in box 1a of your Forms 1099-DIV or substitute statements.

Nominees. If you received a Form 1099-DIV that includes ordinary dividends you received as a nominee (that is, in your name, but the ordinary dividends actually belong to someone else), report the total on line 5. Do this even if you later distributed some or all of this income to others. Under your last entry on line 5, put a subtotal of all ordinary dividends listed on line 5. Below this subtotal, enter “Nominee Distribution” and show the total ordinary dividends you received as a nominee. Subtract this amount from the subtotal and enter the result on line 6.

If you received dividends as a nominee, you must give the actual owner a Form 1099-DIV (unless the owner is your spouse) and file Forms 1096 and 1099-DIV with the IRS. For more details, see the General Instructions for Certain Information Returns and the Instructions for Form 1099-DIV.

 

[sakowitzm]

cathy63 - thanks!

 

[athena53]

You are not talking about a lot of money. From personal experience, if the 1040 amount does not match the 1099, at some point you may get a letter from the IRS.

I'd do the simplest thing. If the 1099-DIV is issued to John only and has only his SSN, John declares it as income and he and Mary decide how she compensates him for the taxes he paid on dividends she actually received. If it's issued with both SSNs they can split the income on their returns any way they want as long as it adds up to the total- this is what works when couples are Married Filing Separately and they split deductions.

I am not a tax accountant and Cathy63's citation looks to be the true answer but if the amount is small I'd do what I described above.

 

[sakowitzm]

Thanks, Athena. That how I would do it.... but the (now) ex-spouse would argue til the cows came home about the tax burden. His bracket is at least 24% while hers is closer to 10% or 12%. And that's EXACTLY the kind of thing that sets him off!

 

[cathy63]

Athena makes a good point that I overlooked. The important info on the 1099-Div for the joint account is not the mailing address (which you said is now John's), but the TIN or SSN. It's possible it will be Mary's TIN, in which case the full amount goes on her return and she can treat it as nominee divs if she wishes. You should be able to tell which person's TIN was used as primary on the account by looking at the 1099 from a prior year.

Since you said you had greatly simplified the information, I assumed we were talking about non-trivial amounts of money. If it's actually a small amount, then I agree with Atena and would just have Mary pay him off. Also, if these are qualified divs, then they are taxed at long-term cap gains rates, so most likely her rate is 0% and his is 15%.

 

[gauss]

3. I think the dividend income that belongs to Mary but was reported to John should be treated as nominee dividends by John. I have never done this and I don't know the exact process for reporting it to the IRS, so you need to do that research; but the basic idea is that John issues a new 1099-DIV to Mary for half the income, then they both report their halves on their own returns.

+1 Agreed that nominee income is a way to file your taxes when you receive information returns (ie 1099's) that contain income that belongs to somebody else.

Note that issuing a 1099 from you to the party that the income actually belongs to is part of the process. You can do this electronically for a dollar or two from a firm called tax1099.com.

I found them back when my father died and his end of the year forms contained payments that occurred after his date of death (and thus properly belonged to the estate).

I was happy to see that tax1099.com is still around now when I have had to manage a few other decedent estates recently, and I continue to use them.

-gauss

 

[sakowitzm]

Excellent info there, gauss. Thanks.